Gold price (XAU/USD) edges higher during the Asian session on Thursday, albeit lacking a follow-through and remains below the $2,000 psychological mark. A generally positive risk tone is seen as a key factor acting as a headwind for the precious metal. The commodity, however, manages to hold above a one-week trough, around the $1,970-1,969 region touched the previous day, warranting caution for aggressive bearish traders.
The US Treasury bond yields and the US Dollar (USD) continue to drift lower in the wake of expectations that the Federal Reserve (Fed) may be done raising interest rates. This, in turn, is seen lending some support to the non-yielding Gold price. Apart from this, the risk of a further escalation in the Israel-Hamas conflict, along with the worsening economic conditions in China, should limit any meaningful slide for the safe-haven XAU/USD.
From a technical perspective, the $2,000 mark is likely to act as an immediate strong barrier. This is followed by a multi-month top, around the $2,008-2,010 area, which if cleared decisively has the potential to lift the Gold price to the next relevant barrier near the $2,022 region. On the flip side, the overnight swing low, around the $1,970 region, now seems to offer some support to the XAU/USD. Some follow-through selling will expose the $1,964 intermediate support before the commodity drops to the $1,954-1,953 zone.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.14% | -0.09% | -0.04% | -0.16% | -0.17% | -0.22% | -0.35% | |
EUR | 0.14% | 0.04% | 0.10% | -0.03% | -0.03% | -0.08% | -0.21% | |
GBP | 0.10% | -0.05% | 0.06% | -0.07% | -0.07% | -0.12% | -0.25% | |
CAD | 0.05% | -0.10% | -0.06% | -0.12% | -0.12% | -0.17% | -0.31% | |
AUD | 0.17% | 0.05% | 0.08% | 0.14% | 0.02% | -0.05% | -0.17% | |
JPY | 0.16% | 0.05% | 0.07% | 0.11% | -0.01% | -0.05% | -0.20% | |
NZD | 0.25% | 0.04% | 0.09% | 0.17% | 0.05% | 0.05% | -0.17% | |
CHF | 0.35% | 0.22% | 0.25% | 0.31% | 0.17% | 0.19% | 0.12% |
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 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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