- Gold price extends its recovery mode at the start of the week on Monday.
- US Dollar eases with Treasury bond yields, as investors reassess Fed rate cut bets.
- Gold buyers need to crack the 21-day SMA at $2,025. RSI steadies below the 50 level.
Gold price sets off the new week on the front foot, as buyers extend the previous week’s recovery mode into Monday. The upward trajectory in the Gold price is powered by a broadly softer US Dollar (USD), tracking the US Treasury bond yields lower amid a mixed market sentiment.
Gold price extends recovery gains
Chinese traders return to markets with full optimism after a week-long Lunar New Year holiday but rest of the Asian equity markets trade with caution. Investors reassess the US Federal Reserve (Fed) interest rate cut expectations, especially after hot US Consumer Price Index (CPI) and Producer Price Index (PPI) data came in hotter-than-expected and helped push back their expectations of a Fed rate cut from March to June. Markets are currently pricing a 77% chance of a cut in June, the CME Group’s Fed Watch Tool shows.
Despite hopes for a delayed Fed rate cut than previously expected, the non-yielding Gold price remains resilient and resumes its recovery momentum, in the face of a broad-based US Dollar softness. The Greenback remains on the defensive at the start of the new week, as traders resort to repositioning ahead of Wednesday’s Minutes of the February Fed meeting. Further, a US market holiday on Monday, in observance of Presidents’ Day, leaves the US Dollar at the mercy of risk sentiment.
Additionally, Gold price is taking advantage of a sluggish performance in the US Treasury bond yields and geopolitical tensions in the Middle East. The latest developments include news of a Belize-flagged, UK-registered and Lebanese-operated ship that was attacked in the Bab al-Mandab Strait, Red Sea.
Meanwhile, global growth fears also continue to act as a tailwind for the traditional safe-haven Gold price. Last week, Gross Domestic Product (GDP) data from the UK and Japan showed that both economies slipped into technical recession after reporting two consecutive quarters of negative growth.
Looking ahead, Gold price is likely to hold onto its upswing from the two-month low of $1,984, with an exaggerated move not ruled out amid holiday-thinned trading conditions. The key focus this week remains on Wednesday’s Fed Minutes and US S&P Global business PMI data on Thursday.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price needs acceptance above the 21-day Simple Moving Average (SMA), now at $2,025 on a daily closing basis to stretch the recovery.
The 14-day Relative Strength Index (RSI) is also following the recovery mode, testing the midline for the upside.
If the RSI indicator manages to yield a sustained break above the midline, the tide could change in favor of Gold buyers.
The next upside barrier is seen at the 50-day SMA of $2,032 if the 21-day SMA at $2,025 is taken out convincingly.
Further up, the February 7 high of $2,044 will test bearish commitments, if Gold price eyes the $2,050 psychological barrier.
Alternatively, rejection above the 21-day SMA could recall Gold sellers, with immediate support seen at the daily low of $2,011. If the latter gives way, a retest of the $2,000 threshold will be on the cards.
The last line of defense for Gold buyers will be the 100-day SMA at $1,998, which defended Gold price throughout the previous week.
Gold FAQs
Why do people invest in Gold?
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Who buys the most Gold?
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
How is Gold correlated with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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