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07.03.2024, 10:48

Gold price refreshes all-time high on firm Fed rate-cut bets for June

  • Gold price trades close to all-time highs near $2,160 as expectations for a Fed rate cut in June increase.
  • The US Dollar has weakened as recent data doubts the strong momentum of US growth.
  • Investors will keenly focus on the US NFP data for fresh impetus.

Gold price (XAU/USD) extends its winning streak for the seventh trading session on Thursday. The precious metal refreshes all-time highs near $2,160 amid multiple tailwinds. Firm expectations for a rate-cut decision by the Federal Reserve (Fed) in the June monetary policy meeting have strengthened the appeal for Gold. Improved safe-haven demand due to uncertain global financial conditions has also strengthened demand for Gold. 

A sharp decline in US Treasury yields has reduced the opportunity cost of holding investments in non-yielding assets, such as Gold. 10-year US Treasury yields are slightly up by 0.2% at 4.11% in Thursday’s European session, but have dropped sharply from 4.22% in the last two trading sessions. 

Yields on interest-bearing government bonds slumped as Fed Chair Jerome Powell said in his semi-annual report presented to Congress that rate cuts would be appropriate sometime this year, even though he also said it is not assured that inflation will return sustainably to 2%.

The US Dollar Index (DXY) has dropped to a monthly low near 103.20 amid uncertainty over the United States economic outlook. Going forward, the US Dollar will be guided by the US Nonfarm Payrolls (NFP) data for February, which will be published on Friday. Also, Fed Powell will testify before Congress for the second day at 15:00 GMT.

Daily digest market movers: Gold price capitalizes as Fed rate-cut hopes improve

  • Gold price prints a fresh all-time high around $2,160 as market expectations for Federal Reserve rate cuts in the June meeting increase, and global growth prospects remain uncertain. The CME Fedwatch tool shows that the chances for a 25 basis points (bp) rate cut for June’s policy meeting have increased to 60% from 58% on Wednesday.
  • The expectations for a rate-cut decision in the June meeting were affirmed despite Fed chair Jerome Powell reiterating that rate cuts are appropriate only if they get convinced that inflation will sustainably return to the 2% target. Powell didn’t offer any specific timing for rate cuts but said, "It will likely be appropriate to begin dialing back policy restraint at some point this year."
  • Contrary to market expectations, Minneapolis Federal Reserve Bank President Neel Kashkari delivered a more hawkish stance on Wednesday. Kashkari said that he expects only one rate cut is appropriate due to robust economic data since the start of the year. In December’s economic projections, Kashkari penciled two rate cuts for 2024.
  • Meanwhile, uncertainty over global growth has also improved the appeal of Gold. Jerome Powell warned in his prepared remarks that the economic outlook is uncertain. A few economic indicators signal that the United States economy is losing momentum. The Institute of Supply Management (ISM) PMIs reported a decline in growth in February. In the same period, hiring by private employers was lower at 140K against expectations of 150K. In January, jobs posted by US employers were slightly lower at 8.863 million against the 8.9 million in December.
  • Across the globe, the outlook of the United Kingdom and the Eurozone economy is uncertain. The former fell into a technical recession in the second half of 2023, while the latter remained stagnant in the same period. On the Asian side, the Chinese economy has vowed to transform its growth model and set an ambitious growth target of 5% for 2024. However, economists have voiced doubts about the chances of reaching this target due to weak retail domestic demand, disinflation, and the real-estate crisis.

Technical Analysis: Gold price trades close to all-time high near $2,161.60

Gold price prints a fresh all-time high at $2,161.60 after breaking above the horizontal resistance plotted from December 4 high near $2,145. The Gold price is trading in unchartered territory and is expected to remain broadly bullish. However, a corrective move in the asset cannot be ruled out as momentum oscillators have reached overbought territory. On the downside, December 4 high near $2,145 and December 28 high at $2,088 will be major support levels.

The 14-period Relative Strength Index (RSI) reaches 82.00, the highest level in the last two years, indicating that fresh bids should not be considered. 

Gold FAQs

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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