Gold price (XAU/USD) gains positive traction for the second straight day – also marking the fourth day of a positive move in the previous five – and climbs to a near three-week high, around the $2,055 region during the Asian session on Friday. The uptick, however, lacks bullish conviction as traders opt to wait for the release of the US Core Personal Consumption Expenditure (PCE) Price Index, due later today. The crucial US inflation data will influence the Federal Reserve's (Fed) future policy decisions and provide a fresh directional impetus to the non-yielding yellow metal.
In the run-up to the key macro data, the uncertainty over the timing of when the Fed will begin cutting rates in 2024 allows the US Dollar (USD) to recover a part of Thursday's slide to a multi-month low, touched in reaction to a downward revision of the US GDP. This, in turn, is seen acting as a headwind for the Gold price. The downside, however, remains cushioned on the back of growing acceptance that the Fed will eventually pivot away from its hawkish stance early next year. This keeps the US Treasury bond yields depressed near a multi-month low and should cap the USD.
From a technical perspective, a move beyond the $2,047-2,048 region could be seen as a breakout through over a one-week-old consolidative trading range and favours bullish traders. This comes on the back of the occurrence of a golden cross, with the 50-day Simple Moving Average (SMA) crossing the 200-day SMA from below, and supports prospects for additional gains. Moreover, oscillators on the daily chart are holding in the positive territory and further validate the near-term constructive outlook. Hence, a subsequent strength towards the next relevant hurdle, around the $2,072-2,073 region, looks like a distinct possibility. The momentum could get extended further and allow the Gold price to reclaim the $2,100 round figure.
On the flip side, weakness below the aforementioned trading range resistance breakpoint could drag the XAU/USD back to the $2,028-2,027 region en route to the $2,017 horizontal support. A convincing break below the latter might prompt some technical selling and make the Gold price vulnerable to accelerate the slide towards the $2,000 psychological mark. This is closely followed by the 50-day SMA, currently around the $1,994 area, below which the downward trajectory could get extended further towards last week's swing low, around the $1,973 region, en route to a technically significant 200-day SMA, near the $1,958 zone.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.08% | 0.01% | 0.03% | 0.28% | 0.32% | 0.23% | 0.07% | |
EUR | -0.08% | -0.04% | -0.06% | 0.20% | 0.23% | 0.16% | -0.01% | |
GBP | -0.01% | 0.05% | 0.00% | 0.26% | 0.30% | 0.20% | 0.06% | |
CAD | -0.04% | 0.06% | -0.02% | 0.26% | 0.30% | 0.21% | 0.03% | |
AUD | -0.28% | -0.20% | -0.27% | -0.27% | 0.00% | -0.04% | -0.22% | |
JPY | -0.32% | -0.24% | -0.28% | -0.29% | -0.03% | -0.08% | -0.24% | |
NZD | -0.26% | -0.17% | -0.22% | -0.22% | 0.04% | 0.07% | -0.17% | |
CHF | -0.10% | 0.02% | -0.05% | -0.03% | 0.21% | 0.23% | 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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