Forex News

12:19:03 26-02-2024

Gold price hovers near two-week high ahead of US data-packed week

  • Gold price remains in a tight range, slightly above $2,030, as the US Dollar trades sideways.
  • Fed Williams said interest-rate cuts are likely later this year.
  • Investors await the US core PCE inflation data for fresh guidance.

Gold price (XAU/USD) consolidates in a strict range in Mondays European session as investors are sidelined ahead of crucial economic releases this week. The upside in the Gold price remains restricted due to the Federal Reserves (Fed) hawkish narrative on interest rates, while tensions surrounding the Middle East crisis have capped the downside.

Fed policymakers have been reiterating that interest-rate cuts are likely later this year. However, no one is providing a detailed time frame as officials still lack evidence that inflation will sustainably come down to the 2% target.

The muted performance in the Gold price is also linked to the US Dollar, which has been trading broadly sideways as investors shift their focus towards the US core Personal Consumption Expenditure (PCE) Price Index data for January. The Feds preferred inflation gauge, which will be published on Thursday, will likely influence market expectations for rate cuts. The US Dollar Index (DXY), which tracks the Greenbacks value against six major currencies, trades close to 103.80.

Daily digest market movers: Gold price tracks sideways US Dollar

  • Gold price trades slightly below a two-week high of $2,040 as investors remain uncertain about the timing of rate cuts by the Federal Reserve. Due to sticky price pressures and the resilient US economy, the Fed is not interested in cutting down key lending rates early. This has been restricting the upside in Gold.
  • However, geopolitical uncertainty continues to provide support to bullions despite deepening talks over a ceasefire between Israel and Palestine. This week, Qatar is set to host ceasefire negotiations. Meanwhile, conditions in Gaza are deteriorating further as the delivery of humanitarian aid has fallen substantially in the last month due to intensified bombarding from the Israeli army.
  • In addition to that, the US and the UK militaries continue to attack the positions of Houthis in Yemen amid retaliation for attacking commercial vessels in the Red Sea.
  • On the United States front, investors will keenly focus on the core PCE Price Index data for January, which will likely influence market expectations for rate cuts by the Fed.
  • The CME FedWatch tool shows that rate cuts arent expected at the March and May policy meetings. There is a 54% chance that a rate cut by 25 basis points (bps) will be announced in the June meeting, which would push down interest rates in the range of 5.00%-5.25%.
  • Meanwhile, the maintenance of a hawkish narrative by Fed policymakers has been pushing back expectations of early rate cuts.
  • Last Week, Fed Governor Christopher Waller expressed caution regarding the pace of interest-rate cuts by saying that he wants to see inflation data for at least a couple of months more to judge whether stubborn figures in January were merely a short-term bump.
  • On the contrary, New York Fed President John Williams said his view on the economy has not significantly changed due to the one-time blip in Januarys inflation data. When asked about the timing of rate cuts, John Williams said rate cuts could be announced later this year.

Technical Analysis: Gold price juggles above $2,030

Gold price trades in a narrow range above $2,030 as investors await more guidance on interest rates. The near-term trend is slightly bullish as Gold is trading above the 20-day and 50-day Exponential Moving Averages (EMAs), which are around $2,020.

The yellow metal trades in a Symmetrical Triangle chart pattern formed on a daily time frame. The precious metal is gradually approaching the downward-sloping border of the aforementioned pattern, which is plotted from the December 28 high at $2,088. The upward-sloping border of the chart pattern is placed from the December 13 low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in humans 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 doesnt 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 countrys 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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