- Gold price struggles to gain any meaningful traction and hangs near one-week low.
- Hawkish Fed expectations underpin the USD and act as a headwind for the metal.
- Traders seem reluctant to place aggressive bets ahead of the crucial FOMC decision.
Gold price (XAU/USD) extends its sideways consolidative price move during the Asian session on Wednesday as traders opt to wait for the outcome of the highly anticipated FOMC monetary policy meeting. Heading into the key central bank event risk, growing acceptance that the Federal Reserve (Fed) will stick to its higher-for-longer interest rates narrative amid sticky inflation lifts the US Dollar (USD) to a two-week high. This, along with the prevalent risk-on environment, turns out to be another factor acting as a headwind for the safe-haven precious metal.
The downside for the Gold price, however, remains cushioned in the wake of geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East. Investors also seem reluctant and await more cues about the Fed’s rate-cut path before placing fresh directional bets. Hence, the focus will remain on updated economic projections, which, along with Fed Chair Jerome Powell’s comments at the post-meeting press conference, will play a key role in determining the next leg of a directional move for the non-yielding yellow metal.
- The stronger US inflation figures released last week forced investors to trim their bets for an interest rate cut in June and remain supportive of elevated US Treasury bond yields, underpinning the US Dollar and capping the Gold price.
- The current market pricing indicates a less than 50% likelihood that the Fed will deliver its first interest-rate cut in June, and the central bank’s 2024 median interest-rate projection could shift to two cuts from three cuts previously.
- The yield on the benchmark 10-year US government bond climbed to its highest level since November 30, pushing the USD to a two-week high and contributing to keeping a lid on any meaningful upside for the non-yielding yellow metal.
- Wall Street closed Tuesday’s trading session on a high note Tuesday, with the S&P 500 rising to a fresh record high and holding back bulls from placing bets around the safe-haven commodity despite the ongoing geopolitical tensions.
- Traders, however, opt to wait for the outcome of the highly anticipated two-day FOMC monetary policy meeting for cues about the future rate-cut path before positioning for the next leg of a directional move for the XAU/USD.
- The US central bank is widely expected to keep rates at their historic highs, though the market focus will be on the “dot plot” for clues about the number and timing of rate cuts this year, which will influence the precious metal.
- Adding to this, Fed Chair Jerome Powell’s comments during the post-meeting press conference might infuse some volatility in the financial markets and provide some meaningful impetus to the Gold price.
Against the backdrop of the recent blowout rally to the record peak, the pullback witnessed over the past week or so along a downward-sloping channel, constitutes the formation of a bullish flag pattern. Furthermore, technical indicators on the daily chart have eased from the overbought territory and are still holding comfortably in the positive zone. This, in turn, validates the constructive setup and suggests that the path of least resistance for the Gold price is to the upside.
That said, it will be prudent to wait for a sustained breakout through the descending channel before positioning for any further appreciating move. The Gold price might then accelerate the positive move to the $2,175-2,176 intermediate hurdle en route to the record peak, around the $2,195 area touched last week. Some follow-through buying beyond the $2,200 mark will set the stage for the resumption of the uptrend witnessed since the beginning of this month.
On the flip side, the $2,145-2,144 now seems to have emerged as an immediate strong support, which should act as a pivotal point for the Gold price. A convincing break below will expose the next relevant support near the $2,128-2,127 zone before the XAU/USD extends the corrective decline further towards the $2,100 round figure.
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.
