- Gold price snaps a three-day uptrend near $2,070 early Wednesday.
- The US Dollar finds its feet amid sluggish US Treasury bond yields, a mixed mood.
- Gold price faces a stiff hurdle at $2,079, a brief pullback cannot be ruled out.
Gold price has returned to the red for the first time in four trading days on Wednesday, pulling back slightly from two-week highs of $2,071 set on December 22.
Gold price eyes a fresh catalyst amid thin trading
Gold price is catching a breather, as the US Dollar (USD) is finding its feet due to a cautious market mood, despite a sluggish performance seen in the US Treasury bond yields. Investors catch up on their trades, as well as, on the latest macroeconomic developments following the Christmas holiday break, keeping themselves away from any fresh directional bets.
Additionally, muted activity on the US Federal Reserve (Fed) interest rate cut bets for next year also leaves Gold buyers in limbo. Gold price was on a three-day uptrend, backed by increased expectations of Fed rate cuts in 2024. Markets are currently pricing in a 79% chance of a rate cut starting in March 2024, according to the CME FedWatch tool, with as much as 153 basis points (bps) of cuts priced in for next year.
The dovish sentiment around the Fed policy pivot gathered strength after data from the Commerce Department showed Friday that the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, rose just 0.1% in November and was up 3.2% from a year ago.
The data sent the US Dollar Index to a fresh five-month low of 101.43 while the US Treasury bond yields challenged multi-month lows, with the benchmark 10-year US Treasury bond yields currently gyrating at around 3.85%.
Looking ahead, Gold investors will trade with caution, as full markets return but pre-New Year curtailed week will continue to see muted volumes. Thin liquidity conditions could leave Gold price subject to intense volatility. The US docket on Wednesday will feature the low-impact Richmond Fed Manufacturing Index, with all eyes on the Wall Street sentiment.
Gold price technical analysis: Daily chart
Technically, nothing seems to have changed for the Gold price, as the path of least resistance still appears to the upside.
The 14-day Relative Strength Index (RSI) indicator continues to hold above the midline, backing the bullish potential. However, the latest downtick in the RSI indicator indicates the pullback in Gold price could extend toward the 21-day Simple Moving Average (SMA) at $2,032. Ahead of that, the $2,050 round figure will challenge the bullish commitments.
On the upside, a sustained break above the rising trendline resistance at $2,079 is needed to resume the recovery momentum toward the $2,100 psychological level. Further up, Gold buyers would target the all-time highs of $2,144.
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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