- Gold price attracts fresh sellers on Thursday and snaps a three-day winning streak.
- The Fed’s outlook of fewer rate cuts this year is seen weighing on the commodity.
- Traders now look to the US PPI and Initial Jobless Claims for short-term impetus.
Gold prices (XAU/USD) gained positive traction for the third successive day on Wednesday and touched a fresh weekly peak, around the $2,341-2,342 area in reaction to softer US consumer inflation figures. The momentum, however, ran out of steam in the vicinity of the 50-day Simple Moving Average (SMA) support-turned-resistance after the Federal Reserve’s (Fed) hawkish surprise. In fact, policymakers now see just one rate cut in 2024 as compared to three projected in March, which, in turn, is seen exerting some follow-through pressure on the non-yielding yellow metal during the Asian session on Thursday.
Meanwhile, the shift in the Fed’s projections, which led to a modest uptick in the US Treasury bond yields, assists the US Dollar (USD) to build on the overnight bounce from a multi-day low and further undermines the Gold price. That said, geopolitical tension in the Middle East and political uncertainty in Europe should lend some support to the XAU/USD. Nevertheless, the broader fundamental backdrop suggests that the path of least resistance for the XAU/USD is to the downside. Traders now look to Thursday’s US economic docket – featuring the Producer Price Index (PPI) and Weekly Initial Jobless Claims data.
Daily Digest Market Movers: Gold price is pressured by Fed’s hawkish bias and modest USD strength
- The initial market reaction to the softer US consumer inflation data on Wednesday faded rather quickly after the Federal Reserve said that it sees only one rate cut this year, which, in turn, is seen undermining the non-yielding Gold price.
- The US Bureau of Labor Statistics (BLS) reported that inflation, as measured by the change in the Consumer Price Index (CPI), was unchanged in May for the first time since last June, and the yearly rate edged down to 3.3% from 3.4%.
- The annual core CPI, which excludes volatile food and energy prices, was up 0.2% during the reported month and rose 3.4% on a yearly basis as compared to the 3.6% increase in April and consensus estimates for a reading of 3.5%.
- The Fed kept interest rates unchanged at the end of a two-day policy meeting and projected the benchmark rate falling to 5.1% this year, suggesting just one rate cut in 2024 as against a prior estimate of three cuts at the March meeting.
- Adding to this, the Fed lifted its forecast on the neutral rate to 2.8% from 2.6% previously, providing a modest lift to the US Dollar and contributing to driving flows away from the USD-denominated commodity.
- French President Emmanuel Macron’s decision to call snap elections later this month increased political uncertainty in the Eurozone’s second-biggest economy and could lend support to the safe-haven precious metal.
- Thursday’s US macro data could produce short-term trading opportunities later during the early North American session ahead of the Bank of Japan (BoJ) policy decision on Friday, which could infuse volatility in the market.
Technical Analysis: Gold price could accelerate the fall once the $2,285 horizontal support is broken
From a technical perspective, the overnight failure near the 50-day SMA support-turned-resistance and the subsequent slide favors bearish traders. Moreover, oscillators on the daily chart are holding in negative territory and support prospects for a further depreciating move for the Gold price. That said, any further decline is likely to find some support near the $2,300 mark ahead of the $2,285 horizontal zone. Some follow-through selling will be seen as a fresh trigger for bearish traders and make the XAU/USD vulnerable to accelerate the fall towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 round figure.
On the flip side, any strength beyond the $2,325 hurdle might continue to attract fresh sellers and remain capped near the 50-day SMA support breakpoint, currently pegged near the $2,345 region. This is followed by the $2,360-2,362 supply zone, which, if cleared decisively, should allow the Gold price to retest last week’s swing high, around the $2,387-2,388 area and aim to reclaim the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and pave the way for some meaningful appreciating move in the near term.
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.
