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Gold seems vulnerable to weaken further on the back of reviving USD demand

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  • Gold price continues with its struggle to gain traction and remains confined in range.
  • The uncertain Fed rate cut path is holding back traders from placing directional bets.
  • Subdued USD demand and a positive risk tone also do little to provide any impetus.

Gold price (XAU/USD) remains on the defensive through the first half of the European session on Thursday and trades below the weekly top touched the previous day. The recent upbeat US macro data, along with hawkish remarks by several Federal Reserve (Fed) officials recently, forced investors to scale back their expectations for early and steep interest rate cuts in 2024. This remains supportive of elevated US Treasury bond yields, which help revive the US Dollar (USD) demand and is seen acting as a headwind for the non-yielding precious metal.

Investors, however, seem convinced about an imminent shift in the Fed’s policy stance and are pricing in five rate cuts over the course of the seven remaining meetings this year. This is holding back the USD bulls from placing aggressive bets and lending support to the Gold price, though the prevalent risk-on mood might cap any attempted recovery. Traders might also prefer to wait for the latest US consumer inflation figures, due next week, for cues about the Fed’s future policy decisions and determining the near-term trajectory for the XAU/USD. 

Daily Digest Market Movers: Gold price extends the range play, bearish bias remains amid renewed USD buying

  • The recent hawkish remarks by several Federal Reserve officials smashed expectations for early and steep interest rate cuts in 2024, which, in turn, acts as a headwind for the non-yielding Gold price.
  • Fed Chair Jerome Powell dashed any remaining hopes for a March rate cut and said on Sunday that the central bank can be “prudent” in deciding when to start easing in the wake of a strong economy.
  • Fed Governor Adriana Kugler said on Wednesday that she is pleased with the great progress on inflation and added that she is optimistic that the progress will continue, though the job is not done yet.
  • Kugler further added that at some point, cooling inflation and labor markets may make a rate cut appropriate, but if disinflation progress stalls, it may be appropriate to hold the policy rate steady for longer.
  • Boston Fed President Susan Collins said that inflation has slowed faster than expected but added that the central bank wants more certainty before it cuts rates and the economy needs to cool a bit further.
  • Minneapolis Fed President Neel Kashkari noted that officials would like to see a few more months of inflation data before cutting rates and added that he thinks two to three cuts will be appropriate for 2024.
  • The markets, however, are still pricing in five rate cuts over the course of the Fed’s seven remaining meetings this year, which keeps the US Dollar bulls on the defensive and lends support to the XAU/USD.
  • The yield on the benchmark 10-year US government bond holds comfortably above the 4.0% market and should help limit any meaningful downside for the Greenback ahead of the US inflation figures next week.
  • The prevalent risk-on environment might further contribute to capping the upside for the safe-haven precious metal as traders now look to the US Weekly Initial Jobless Claims for short-term opportunities.

Technical Analysis: Gold price bears might aim to retest weekly low, around the $2,015 region

From a technical perspective, the $2,023-2,022 area is likely to protect the immediate downside ahead of the weekly low, around the $2,015 region. Some follow-through selling will expose the $2,000 psychological mark, below which the Gold price could accelerate the slide towards the 100-day Simple Moving Average (SMA), currently around the $1,986 zone. The downfall could extend further towards the very important 200-day SMA, near the $1,966-1,965 region.

On the flip side, the overnight swing high, around the $2,044-2,045 area, or the weekly top, now seems to act as an immediate hurdle ahead of the $2,054-2,055 zone and the $2,065 region, or last week’s swing high. Given that oscillators on the daily chart are holding in the positive territory, a sustained strength beyond should lift the Gold price towards the $2,078-2,079 area, or the YTD peak set in January. The subsequent move-up should allow the XAU/USD to reclaim the $2,100 mark and climb further to the next relevant hurdle near the $2,120 region.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.05% -0.08% -0.13% -0.35% -0.10% -0.88% 0.66%
EUR 0.05%   -0.02% -0.08% -0.30% -0.05% -0.83% 0.71%
GBP 0.08% 0.03%   -0.05% -0.27% -0.03% -0.80% 0.75%
CAD 0.13% 0.08% 0.06%   -0.22% 0.03% -0.75% 0.79%
AUD 0.34% 0.28% 0.28% 0.22%   0.25% -0.53% 1.00%
JPY 0.09% 0.02% -0.02% -0.02% -0.25%   -0.81% 0.75%
NZD 0.87% 0.82% 0.80% 0.75% 0.53% 0.79%   1.53%
CHF -0.67% -0.71% -0.74% -0.80% -1.02% -0.77% -1.56%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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.

Source: https://www.fxstreet.com/news/gold-price-extends-the-range-play-as-traders-await-more-cues-about-feds-rate-cut-path-202402080421

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