- Gold price ticks lower amid some profit-taking near the all-time peak set this Thursday.
- The uncertainty over the Fed’s rate-cut path weighs on the USD and should lend support.
- Persistent geopolitical tensions might also contribute to limiting losses for the XAU/USD.
Gold price (XAU/USD) retreats after hitting a fresh record high earlier this Thursday and extends its steady intraday descent through the first half of the European session. Bulls opt to take some profits off the table amid overbought conditions on short-term charts and a positive risk tone, which tends to undermine the safe-haven precious metal. Any meaningful corrective decline, however, still seems elusive in the wake of persistent geopolitical tensions stemming from the protracted Russia-Ukraine war and conflicts in the Middle East.
Apart from this, the prevalent US Dollar (USD) selling bias, led by the uncertainty over the Federal Reserve's (Fed) rate-cut path, might further contribute to limiting the downside for the Gold price. Traders might also prefer to wait on the sidelines ahead of the release of the US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out in the near term and positioning for deeper losses.
Daily Digest Market Movers: Gold price is weighed down by positive risk tone, Fed rate cut bets to limit losses
- The risk that the Israel-Hamas war may spread to include Iran and spark a wider conflict in the Middle East pushes the safe-haven Gold price to a fresh all-time peak.
- Iran has vowed to retaliate against the Israeli attack on its embassy compound in Damascus – Syria's capital – that killed two Iranian generals and five military advisers on Monday.
- Mixed cues on interest rates from the Federal Reserve officials drag the US Dollar to a one-week low and turn out to be another factor benefiting the yellow metal.
- Influential FOMC members, including Fed Chair Jerome Powell, reiterated this week that the central bank will cut rates in 2024, though offered few cues on the timing.
- Powell said on Wednesday that it would take a while to evaluate the current state of inflation and emphasized the need for more debate and data before interest rates are cut.
- The yield on the benchmark 10-year US government bond retreated after hitting a four-month high on Wednesday, which acts as a tailwind for the non-yielding XAU/USD.
Technical Analysis: Gold price stalls the recent bullish run near $2,300 amid overbought RSI on the daily chart
From a technical perspective, the extremely overbought Relative Strength Index (RSI) on the daily chart makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. Meanwhile, any corrective decline might now find some support near the $2,280 level ahead of the overnight swing low, around the $2,265 region. Some follow-through selling, however, might drag the Gold price further below the $2,250 level towards the weekly through, around the $2,229-2,228 zone. The latter should act as a key pivotal point, which, if broken decisively, should pave the way for deeper losses and expose the $2,200 psychological mark.
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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