Gold price struggles to lure buyers amid positive risk tone, reduced Fed rate cut bets
- Gold price lacks follow-through buying and is influenced by a combination of diverging forces.
- Easing geopolitical tensions continue to undermine demand for the safe-haven precious metal.
- Tuesday’s dismal US PMIs weigh on the USD and lend support ahead of the key US macro data.
Gold price (XAU/USD) struggles to capitalize on the previous day's bounce from over a two-week low – levels just below the $2,300 mark – and oscillates in a narrow range during the Asian session on Wednesday. Diminishing fears about a further escalation of tensions in the Middle East turn out to be a key factor that continues to undermine the safe-haven precious metal. Apart from this, growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer amid sticky inflation further contributes to capping the upside for the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) languishes near its lowest level in over a week in the wake of Tuesday's disappointing release of the US PMIs, which suggested that the economic upturn lost momentum at the start of the second quarter. This, in turn, is seen lending some support to the Gold price as traders keenly await important US macro data – the Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index on Thursday and Friday, respectively. In the meantime, the US Durable Goods Orders data might provide some impetus to the XAU/USD later today.
Daily Digest Market Movers: Gold price continues to be undermined by receding safe-haven demand
- Easing concerns over geopolitical tensions in the Middle East remain supportive of a generally positive risk tone and continue to act as a headwind for the safe-haven Gold price.
- Hawkish comments from Federal Reserve officials lifted bets that the US central bank will keep rates higher for longer and further undermined the non-yielding yellow metal.
- The weaker US PMI prints released on Tuesday keep the US Dollar bulls on the defensive near a one-and-half-week low, which is seen lending some support to the commodity.
- The S&P Global Composite Purchasing Managers Index (PMI) fell to 50.9 in April's flash estimate, suggesting that the business activity in the US private sector expanded at a slower pace.
- Meanwhile, the S&P Global Manufacturing PMI unexpectedly dropped into the contraction territory in April, while the gauge for the services sector declined to 50.9 from 51.7 in March.
- Traders also prefer to wait on the sidelines ahead of this week's key US macro data, which might influence the Fed's future policy decision and provide a fresh impetus to the XAU/USD.
- Wednesday's US economic docket features Durable Goods Orders, though the focus remains on the Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index.
Technical Analysis: Gold price needs to find acceptance below $2,300 for bears to seize control
From a technical perspective, the XAU/USD showed some resilience below the 23.6% Fibonacci retracement level of the February-April rally. The subsequent bounce, along with the fact that oscillators on the daily chart are still holding in the positive territory, warrants some caution for bearish traders. Hence, it will be prudent to wait for acceptance below the $2,300 mark before positioning for deeper losses. The Gold price might then slide to the $2,260-2,255 area, or the 38.2% Fibo. level, en route to the $2,225 intermediate support and the $2,200-2,190 confluence, comprising the 50% Fibo. level and the 50-day Simple Moving Average (SMA).
On the flip side, any further move up is more likely to confront stiff resistance and remain capped near the $2,350-2,355 region. The next relevant hurdle is pegged near the $2,380 supply zone, which is followed by the $2,400 mark and the all-time peak, near the $2,431-2,432 area. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent blowout rally witnessed over the past two months or so.
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.