- Gold price sees a fresh leg down in Asia on Tuesday even as risk flows dissipate.
- Receding fears over Middle East escalation offset subdued US Dollar and Treasury bond yields.
- Gold price remains heavily oversold on the 4H chart, rebound appears in the offing.
Gold price is extending the previous day’s corrective decline into Tuesday’s Asian trading, having hit the lowest level in 12 days at $2,296.
Global Preliminary PMIs to dominate on Tuesday
Easing worries of a wider regional conflict in the Middle East combined with a tech rally on Wall Street overnight contributed to the latest leg down in Gold price, as risk flows extended into Asia.
However, investors seem to turn cautious ahead of the key US tech earnings reports and preliminary business PMI data from the UK, Eurozone and the US, which could help provide cues on the timing of the interest rate cuts by major central banks, especially by the US Federal Reserve (Fed).
Last week, Fed policymakers, including Chair Jerome Powell, joined the chorus to maintain the rates ‘higher for longer’. Markets now price in the first Fed rate cut in September, according to the CME Group’s FedWatch Tool. Meanwhile, the total easing expected this year would just be 40 basis points, a sea change from about 150 basis points of cuts priced in at the beginning of the year, per Reuters.
Increased bets for delayed Fed rate cuts continue to act as a headwind for the Gold price alongside hopes that there would be no further escalation in the conflict between Israel and Iran after the latter downplayed Israel's retaliatory drone strike against Tehran.
In the lead-up to the global PMI data releases, the US Dollar consolidates the previous pullback amid a cautious market mood. If risk-aversion picks up steam on disappointing PMI reports, the US Dollar could regain upside traction, exacerbating the pain in Gold price.
However, dismal PMIs could also imply decelerating economic performance in advanced economies, fanning expectations of early policy pivot. The revival in the bets for an earlier than September Fed rate cut could help Gold price stage a decent upswing.
The US S&P Global preliminary Manufacturing PMI is seen a tad higher at 52.0 in April, against the 51.9 reading in March. The Services PMI is also likely to rise to 52.0 in the same period versus a 51.7 figure reported previously.
Gold price technical analysis: Four-hour chart
As observed on the four-hour chart, Gold price came under intense selling pressure after yielding a four-hourly candlestick close below the 50-Simple Moving Average (SMA), then at $2,370.
The sell-off extended below the 100-day SMA support at $2,334, having tested bids under $2,300.
The Relative Strength Index (RSI), a leading indicator, is in a highly oversold region, near 28.50, suggesting that a rebound remains on the cards in the near term.
If Gold price attempts a tepid bounce, the initial hurdle would be seen at around the $2,320 round level, above which the 100-SMA support-turned-resistance at $2,334 will be tested.
A sustained move above the latter is critical to unleashing further recovery toward the 21-SMA and 50-SMA confluence points near $2,365.
The rebound in Gold price could remain limited, as a 21-SMA and 50-SMA Bear Cross remains in play.
Should Gold sellers refuse to give in, the next key demand area is seen between $2,284 and $2,274.
The last line of defense for Gold buyers could be the 200-SMA, aligned at $2,252.
Gold FAQs
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.
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.
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.
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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