- Gold price trades close to all-time highs with eyes on US inflation data for March.
- The US monthly headline and core CPI are projected to have increased at a slower pace of 0.3% in March.
- Escalating geopolitical tensions keeps the demand for Gold intact.
Gold price (XAU/USD) is stuck in a tight range slightly below all-time highs of $2,365 in Wednesday’s European session. Investors refrain from building fresh positions as they await the United States Consumer Price Index (CPI) data for March, which will be published at 12:30 GMT. Economists see inflation remaining stubborn due to higher Oil prices, rentals, insurance costs and portfolio management fees.
The 10-year US Treasury yields remain subdued near 4.36%, while the US Dollar Index (DXY), which values the US Dollar strength against six major currencies, rebounded to 104.00. The US Dollar’s appeal could strengthen if the inflation data turns out hotter than expected, as it will deepen uncertainty about when the Federal Reserve (Fed) could start reducing interest rates.
This scenario also bodes well for interest-bearing assets, such as US bonds. However, it means downside pressure for non-yielding assets such as Gold as it increases the cost of investing in them. Still, there has been an anomaly to Gold in the past few weeks as its demand remained robust despite traders paring big bets on Fed rate cut prospects for the June meeting.
- Gold price is slightly below fresh all-time highs of around $2,365 amid caution ahead of the United States inflation data for March. The precious metal has experienced a great bull run in the last few weeks. However, a correction could emerge as momentum oscillators are expected to cool down after reaching extremely overbought levels and strong payroll data has shaken investors’ confidence in the Federal Reserve reducing interest rates in June.
- Gold has remained the talk of the town in the past few weeks due to a fresh escalation in Middle East tensions, which has firmed safe-haven bids and pent-up demand for precious metals by global central banks. Central banks piled up Gold inventory as a hedge against a potential economic slowdown.
- Fading expectations of a ceasefire between Israel and Palestine also keep Gold demand buoyant. The Israeli proposal of a ceasefire on April 9 didn’t match the demands from Hamas, which wants Israel to withdraw its forces and allow displaced Palestinians to return to their homes.
- In Wednesday’s session, the strength of the Gold will be tested by the US inflation data, which will provide hints about how much and how soon interest rates will be reduced by the Federal Reserve. The Fed anticipated starting to lower borrowing costs from the June meeting. However, upbeat labor market data and policymakers’ comments about delaying rate cuts have dented these expectations.
- US monthly headline and core CPI, which strips off volatile food and energy prices, are both forecasted to have risen at a slower pace of 0.3% from 0.4% in February. In the same period, economists expect the annual headline inflation to accelerate to 3.4% from 3.2%, while the core inflation is anticipated to decelerate to 3.7% from 3.8%.
- Hot figures would allow the Fed to delay rate cut plans, while softening inflation data will boost Fed rate cut expectations for June.
Gold price trades inside Wednesday’s trading range as the US inflation data comes under the spotlight. The precious metal hovers near fresh lifetime highs around $2,360. The near-term demand remains intact as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher.
On the downside, March 21 high at $2,223 will be a major support area for the Gold price bulls.
The 14-period Relative Strength Index (RSI) reaches 85.00, indicating a strong bullish momentum. However, extremely overbought signals could lead to a mild correction.
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.
