Gold price (XAU/USD) builds on its recent strong rally witnessed over the past three weeks or so and surges to a fresh record high, around the $2,144-2,145 region during the Asian session on Monday. The precious metal, however, surrendered a major part of its intraday gains and currently trades below the $2,100 mark, still up around 0.70% for the day. Bulls opt to take some profits off the table amid extremely overbought conditions on the daily chart and a modest US Dollar (USD) uptick. The downside remains cushioned in the wake of growing acceptance that the Federal Reserve (Fed) will start cutting interest rates by as soon as March 2024, which continues to benefit the non-yielding yellow metal.
Apart from this, the geopolitical uncertainty and fears of another COVID-19-like respiratory illness outbreak in China, which is seen weighing on investors' sentiment, might further limit any meaningful pullback for the safe-haven Gold price. An attack on an American warship and commercial vessels operating in the Red Sea fueled concerns over a further escalation in the Israel-Hamas war. Meanwhile, a surge in respiratory illnesses and clusters of pneumonia in children in China attracted the spotlight when the World Health Organization sought information last week. This contributes to cap the recent upswing in the global equity markets and could undermine the safe-haven XAU/USD.
From a technical perspective, the intraday pullback drags the precious metal below the 23.6% Fibonacci retracement level of the rally from the November monthly swing low, around the $1,932-$1,931 region. The Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and holding back bulls from placing fresh bets around the Gold price.
Any further pullback, however, is likely to find support near the $2,079-2,080 area, or the previous all-time peak touched in May, below which the XAU/USD could slide to the 38.2% Fibo. level, around the $2063-2,062 zone. On the flip side, move back above the $2,095-2,100 immediate hurdle might now confront some resistance near the $2,118 area. Some follow-through buying should allow the Gold price to retest the record high around the $2,144-$2,145 region, which if cleared will reinforce the near-term positive outlook and pave the way for additional gains.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Euro.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.02% | 0.25% | 0.18% | 0.20% | 0.12% | 0.16% | 0.24% | |
EUR | -0.03% | 0.25% | 0.17% | 0.20% | 0.09% | 0.17% | 0.21% | |
GBP | -0.27% | -0.23% | -0.07% | -0.05% | -0.13% | -0.08% | -0.01% | |
CAD | -0.18% | -0.16% | 0.08% | 0.03% | -0.08% | 0.00% | 0.06% | |
AUD | -0.20% | -0.19% | 0.04% | -0.03% | -0.10% | -0.03% | 0.03% | |
JPY | -0.15% | -0.07% | 0.30% | 0.08% | 0.12% | 0.07% | 0.12% | |
NZD | -0.17% | -0.14% | 0.09% | 0.02% | 0.04% | -0.04% | 0.07% | |
CHF | -0.25% | -0.21% | 0.02% | -0.05% | -0.03% | -0.11% | -0.07% |
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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