Gold price (XAU/USD) builds on the previous day's mixed US macro data-inspired recovery from the $2,600 neighborhood or a nearly three-week low and gains positive traction for the second straight day on Friday. US data published on Thursday showed that the annual rise in the headline US Consumer Price Index (CPI) was the lowest since February 2021 and a surge in the weekly jobless claims. This, in turn, suggested that the Federal Reserve (Fed) will continue cutting interest rates, which keeps the US Dollar (USD) bulls on the defensive below the highest level since mid-August and benefits the non-yielding yellow metal.
Meanwhile, the markets now seem to have fully priced out the possibility of a more aggressive easing by the Fed and another oversized interest rate cut in November. The expectations were reaffirmed by the September FOMC meeting minutes, which, in turn, acts as a tailwind for the Greenback and might cap the Gold price. This, along with hopes that China will announce more fiscal stimulus measures on Saturday to boost growth in the world’s second-largest economy, might keep a lid on the safe-haven precious metal. This, in turn, warrants some caution for aggressive bullish traders ahead of the release of the US Producer Price Index (PPI).
From a technical perspective, the overnight goodish rebound from the vicinity of the $2,600 mark and the subsequent move back above the $2,630 static support breakpoint-turned-resistance favors bullish traders. Moreover, oscillators on the daily chart hold in positive territory and suggest that the path of least resistance for the Gold price is to the upside. Hence, some follow-through strength towards the $2,657-2,658 horizontal barrier, en route to the $2,670-$2,672 supply zone, looks like a distinct possibility. The momentum could eventually lift the XAU/USD to an all-time high, around the $2,685-2,686 region touched in September. This is closely followed by the $2,700 mark, which if cleared will set the stage for an extension of a well-established multi-month-old uptrend.
On the flip side, the Asian session low, around the $2,630-2,628 region, now seems to protect the immediate downside, below which the Gold price could challenge the $2,600 pivotal support. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pace the way for deeper losses. The XAU/USD might then extend the corrective decline towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region before eventually dropping to the $2,500 psychological mark.
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.
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