Gold price (XAU/USD) ticks higher during the Asian session on Thursday and for now, seems to have snapped a two-day losing streak to over a one-month low touched the previous day. The US Dollar (USD) pulls back from its highest level since December 13 amid some profit-taking and benefits the commodity. Meanwhile, an escalation of military action in the Middle East and concerns about sustained economic weakness in China – the world's second-largest economy – continue to weigh on investors' sentiment. This is seen as another factor lending some support to the safe-haven precious metal.
That said, any meaningful recovery for the Gold price still seems elusive in the wake of reduced bets for an imminent shift in the Federal Reserve's (Fed) policy stance. In fact, market participants further scaled back their expectations for an interest rate cut in March following the release of upbeat US Retail Sales figures on Wednesday, which pointed to a resilient US economy. This, in turn, remains supportive of elevated US Treasury bond yields and favours the USD bulls. Hence, it will be prudent to wait for strong follow-through buying before confirming that the XAU/USD has formed a near-term bottom.
From a technical perspective, the overnight breakdown through the 50-day Simple Moving Average (SMA) pivotal support was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and are still far from being in the oversold territory. This, in turn, suggests that the path of least resistance for the Gold price is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out quickly near the $2,017-2,018 region (50-day SMA). That said, a sustained strength beyond might prompt some short-covering rally and lift the XAU/USD further towards the $2,042-2,045 horizontal resistance.
On the flip side, bearish traders might now wait for some follow-through selling below the $2,000 psychological mark before placing fresh bets. The Gold price might then accelerate the downfall towards the December monthly swing low, around the $1,974-1,973 region. The latter near the 100- and 200-day SMAs confluence, around the $1,970-1,964 area, which if broken decisively should pave the way for deeper losses. The XAU/USD might then weaken further towards the $1,955 intermediate support before eventually dropping to the November swing low, around the $1,932-1,931 region.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.12% | -0.10% | -0.10% | -0.20% | -0.06% | -0.22% | -0.05% | |
EUR | 0.12% | 0.00% | 0.02% | -0.08% | 0.06% | -0.10% | 0.07% | |
GBP | 0.12% | 0.01% | 0.02% | -0.07% | 0.07% | -0.10% | 0.08% | |
CAD | 0.10% | -0.02% | -0.01% | -0.09% | 0.03% | -0.12% | 0.06% | |
AUD | 0.18% | 0.08% | 0.08% | 0.09% | 0.14% | -0.03% | 0.15% | |
JPY | 0.06% | -0.06% | -0.06% | -0.05% | -0.14% | -0.18% | 0.02% | |
NZD | 0.24% | 0.11% | 0.12% | 0.12% | 0.03% | 0.16% | 0.18% | |
CHF | 0.05% | -0.07% | -0.06% | -0.06% | -0.14% | -0.02% | -0.17% |
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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