Gold price (XAU/USD) dived to a one-and-half-week low on Wednesday in the wake of rising US Treasury bond yields and a stronger US Dollar. The US bond yields, however, started losing traction after minutes of the December 12-13 FOMC meeting reflected a consensus among policymakers that inflation is under control and the downside risks to the economy associated with an overly restrictive stance. This, along with a generally weaker tone around the equity markets, allowed the precious metal to attract some buyers near the $2,030 area and gain some follow-through traction during the Asian session on Thursday.
The minutes, however, did not provide any clues about the timing of when the Fed will start cutting interest rates. This comes on the back of Richmond Fed President Thomas Barkin's remarks that interest rate hikes remain on the table and act as a tailwind for the US bond yields, which should limit any meaningful downside for the Greenback and cap the Gold price. Meanwhile, traders are seeking more clarity on the Fed's policy outlook. Hence, the focus will remain glued to the release of the closely-watched US monthly employment details – popularly known as Nonfarm Payrolls (NFP) report on Friday.
In the meantime, Thursday's US economic docket, featuring the ADP report on private-sector employment and the usual Initial Jobless Claims, will be looked upon for short-term trading opportunities later during the early North American session. Nevertheless, doubts over the possibility of early interest rate cuts by the Fed might hold back traders from placing aggressive bullish bets around the non-yielding Gold price, warranting some caution before confirming that a one-week-old downtrend has run its course.
From a technical perspective, the overnight breakdown and acceptance below the $2,050-$2,048 resistance-turned-support favours bearish traders. That said, oscillators on the daily chart are still holding in the positive territory and warrant some caution. Hence, it will be prudent to wait for some follow-through selling below the overnight swing low, around the $2,030 area before positioning for any further depreciating move.
The Gold price might then accelerate the slide towards the 50-day Simple Moving Average (SMA), currently around the $2,012-2,011 area, en route to the $2,000 psychological mark. A sustained break below the latter might shift the near-term bias in favour of bearish traders.
On the flip side, momentum back above the $2,050 region now seems to confront stiff resistance near the $2,064-2,065 area. The next relevant hurdle is pegged near the $2,077 horizontal zone, which if cleared decisively should allow the Gold price to aim back towards reclaiming the $2,100 mark.
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 1.16% | 0.44% | 0.66% | 1.08% | 1.64% | 0.84% | 0.91% | |
EUR | -1.01% | -0.55% | -0.36% | 0.08% | 0.49% | -0.17% | -0.16% | |
GBP | -0.46% | 0.55% | 0.22% | 0.63% | 1.27% | 0.38% | 0.38% | |
CAD | -0.66% | 0.33% | -0.03% | 0.41% | 0.98% | 0.16% | 0.19% | |
AUD | -1.09% | -0.08% | -0.63% | -0.44% | 0.38% | -0.26% | -0.22% | |
JPY | -1.65% | -0.44% | -1.12% | -0.79% | -0.40% | -0.65% | -0.79% | |
NZD | -0.83% | 0.19% | -0.38% | -0.17% | 0.27% | 0.65% | 0.03% | |
CHF | -0.85% | 0.17% | -0.37% | -0.17% | 0.25% | 0.78% | 0.01% |
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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