- Gold price retreats from three-month highs of $2,088 early Monday.
- US Dollar finds its feet alongside the Treasury bond yields after Friday’s sell-off.
- Gold price eyes $2,115 in the run-up to a big week, as RSI eases off the overbought territory.
Gold price is taking a breather after testing the three-month high at $2,088 in early Asian hours on Monday. The US Dollar is looking to find its feet alongside the US Treasury bond yields, as markets resort to repositioning ahead of the high-impact economic events from the United States this week.
Gold price is poised for more gains
In the week ahead, all eyes will be on the US Federal Reserve (Fed) Chairman Jerome Powell’s two-day testimony on the semi-annual Monetary Policy Report (MPR) before Congress. Further, the US labor market report will also keep markets in high anticipation, especially after the previous week’s disappointing economic data, which reinforced bets for a Fed policy pivot.
The US Core Personal Consumption Expenditures - Price Index (PCE) Index, the Fed’s preferred inflation measure, aligned with estimates of 2.8% YoY in January but eased from December’s 2.9% increase.
The ISM Manufacturing PMI data showed on Friday that the business activity in the US manufacturing sector contracted at an accelerating pace in February, with the index dropping from 49.1 in January to 47.8 in February, missing the market expectation of 49.5 by a wide margin.
Markets are currently pricing in about a 30% chance that the Fed could begin easing rates in May, slightly higher than a 20% chance a week ago, according to the CME FedWatch Tool. For the June meeting, the probability for a rate cut now stands at about 71%, up from roughly 60% seen at the start of the previous week.
Renewed dovish Fed expectations took their toll on the US Dollar and the US Treasury bond yields, triggering a sharp sell-off on Friday, as Gold price soared to the highest level in three months beyond the $2,050 mark.
In the lead-up to the key US economic data and Powell’s testimony, speeches by several Fed policymakers and the ISM Services PMI will keep Gold traders entertained. Also, of note will remain China’s Caixin Services PMI due on Tuesday for fresh signs on the state of the world’s top Gold consumer.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price rallied hard on Friday after validating an upside break from a symmetrical triangle on Thursday.
At the moment, the 14-day Relative Strength Index (RSI) has eased from the overbought territory to trade near 69.50, suggesting that there is more room for the upside.
The immediate resistance is now seen at the multi-month highs near $2,088-$2,089, above which the $2,100 threshold will be tested.
If the buying momentum intensifies, a test of the all-time high of $2,144 cannot be ruled out.
On the flip side, if Gold buyers fail to take out the $2,088-$2,089 resistance yet again, a brief correction toward the $2,065 support area could be in the offing.
A sustained break below that level could expose the $2,050 psychological level.
(This story was corrected on Monday at 09:52 GMT to say that "the immediate resistance is now seen at the multi-month highs near $2,088-$2,089, above which the $2,100 threshold will be tested," not $2,1,000)
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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