Gold price (XAU/USD) struggles to capitalize on its weekly gains registered over the past two days and ticks lower during the Asian session on Wednesday. The precious metal currently trades around the $2,040 supply zone and seems poised to appreciate further in the wake of the Federal Reserve's (Fed) dovish shift last week. In fact, the so-called “dot plot” indicated that the Fed’s inflation fight won’t require another rate hike and that the key interest rate has already peaked at its current 22-year high of 5.25-5.50%. This keeps the US Treasury bond yields depressed near a multi-month low and might continue to act as a tailwind for the non-yielding yellow metal.
That said, a slew of Fed officials recently tried to temper rate cut expectations. This, along with a modest US Dollar (USD) uptick and the upbeat mood pervading across the global equity markets, keeps a lid on any meaningful appreciating move for the Gold price. Furthermore, traders opt to remain on the sidelines ahead of the US Core Personal Consumption Expenditure (PCE) Price Index on Friday. The key US inflation reading should influence the Fed's future policy decisions and provide a fresh directional impetus to the XAU/USD. In the meantime, traders on Wednesday will take cues from the release of the Conference Board's US Consumer Confidence Index.
From a technical perspective, some follow-through buying beyond the $2,047-2,048 region will be seen as a fresh trigger for bulls and set the stage for an extension of the post-FOMC rally from the 50-day Simple Moving Average (SMA). The Gold price might then accelerate the positive move towards the $2,072-2,073 intermediate resistance before aiming to reclaim the $2,100 round figure.
On the flip side, the $2,018-2,017 area now seems to have emerged as an immediate strong support, below which the Gold price could slide to the $2,000 psychological mark. A convincing break below the latter might prompt some technical selling and expose the 50-day SMA, currently pegged near the $1,989-1,988 zone. The subsequent downfall has the potential to drag the XAU/USD towards last week's swing low, around the $1,973 region, en route to the 200-day SMA, currently near the $1,957 zone.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.10% | 0.09% | 0.09% | -0.11% | -0.14% | -0.10% | 0.09% | |
EUR | -0.10% | 0.00% | -0.02% | -0.21% | -0.23% | -0.21% | -0.02% | |
GBP | -0.10% | 0.01% | -0.01% | -0.20% | -0.23% | -0.18% | -0.01% | |
CAD | -0.08% | 0.02% | 0.02% | -0.20% | -0.22% | -0.18% | -0.01% | |
AUD | 0.12% | 0.21% | 0.20% | 0.20% | -0.02% | 0.01% | 0.20% | |
JPY | 0.14% | 0.25% | 0.22% | 0.20% | 0.03% | 0.05% | 0.21% | |
NZD | 0.08% | 0.19% | 0.17% | 0.18% | -0.02% | -0.03% | 0.17% | |
CHF | -0.05% | 0.02% | 0.02% | -0.01% | -0.20% | -0.22% | -0.18% |
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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