- Gold price hits fresh record high as a combination of factors continues to boost safe-haven demand.
- Dovish Fed expectations keep the USD bulls on the defensive and further underpin the XAU/USD.
- Slightly overbought conditions and a positive risk tone act as a headwind for the precious metal.
Gold price (XAU/USD) extends its consolidative price move into the European session on Thursday as traders seem reluctant to place fresh bets amid slightly overbought conditions. Apart from this, a positive risk tone contributes to capping the precious metal’s intraday uptick to a fresh all-time peak. The downside, however, remains cushioned in the wake of the uncertainty over US President Donald Trump’s aggressive trade policies and their impact on the global economic outlook.
Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East should continue to act as a tailwind for the Gold price. Meanwhile, rising bets that the Federal Reserve (Fed) will resume its rate-cutting cycle sooner than expected fail to assist the US Dollar (USD) in registering any meaningful recovery from a multi-month low. This, in turn, favors bullish traders and suggests that the path of least resistance for the XAU/USD remains to the upside.
Daily Digest Market Movers: Gold price bulls turn cautious amid positive risk tone; downside seems cushioned
- Asian equity markets track the overnight gains on Wall Street, bolstered by the Federal Reserve’s decision to keep interest rates unchanged and maintain its rate cut forecast for the year. As was widely expected, the US central bank held interest rates steady for the second straight meeting and signaled that it would deliver two 25 basis points rate cuts by the end of this year.
- Adding to this, US President Donald Trump and Russian President Vladimir Putin agreed on Tuesday for an immediate pause in strikes against energy infrastructure in the Ukraine war. Moreover, Ukrainian President Volodymyr Zelenskiy and Trump also agreed to work together to end the protracted Russia-Ukraine war, which further boosted investors’ confidence.
- Meanwhile, Fed officials trimmed their growth forecast for the year amid the growing uncertainty over the impact of the Trump administration’s aggressive trade policies on economic activity. Trump imposed a flat 25% duty on steel and aluminum since February and has threatened to impose reciprocal and sectoral tariffs, fueling worries about a global trade war.
- Traders now see over a 65% chance that the Fed would resume its rate-cutting cycle at the June policy meeting. This, in turn, fails to assist the US Dollar in registering any meaningful recovery from a multi-month low touched earlier this week and should lend some support to the non-yielding Gold price amid the risk of a further escalation of tensions in the Middle East.
- The Israeli military said that it launched a limited ground incursion into Gaza, a day after an aerial bombardment of the strip that shattered the two-month-old ceasefire with Hamas. Moreover, Israeli Prime Minister Benjamin Netanyahu warned of fierce war expansion, which should continue to underpin the safe-haven precious metal and limit any corrective slide.
- Traders now look forward to the latest monetary policy updates from the Bank of England and the Swiss National Bank. Later during the North American session, the US economic docket – featuring the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales data – could produce short-term opportunities around the XAU/USD.
Gold price technical setup supports prospects for the emergence of some dip-buyers near $3.023-3,022 area
The daily Relative Strength Index (RSI) remains above the 70 mark, flashing overbought conditions and holding back bulls from placing fresh bets. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for an extension of the recent well-established uptrend witnessed over the past three months or so. That said, the recent breakout through the $3,000 psychological mark and the subsequent move up suggest that the path of least resistance for the Gold price remains to the upside.
Meanwhile, any meaningful corrective slide is likely to attract some dip-buyers around the $3,023-3,022 area. This should help limit the downside near the $3,000 mark, which should now act as a key pivotal point for short-term traders. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $2,980-2,978 intermediate support en route to the $2,956 region. The downward trajectory could extend further towards the $2,930 support before the XAU/USD drops to the $2,900 mark and last week’s swing low, around the $2.880 area.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
