Gold price falls further towards $2,160 on firm US Dollar

• Gold price fails to hold all-time highs around $2,220 as the US Dollar strengthens.
• The US Dollar capitalizes on the strong US economic outlook.
• The Fed’s rate-cut campaign could be less aggressive compared with other central banks in developed nations.

Gold price (XAU/USD) extends its downside to near $2,160 in Friday’s European session after failing to sustain close to its all-time highs above $2,220. The precious metal faces a sharp sell-off as the US Dollar strengthens on an upbeat United States economic outlook, reinforced by robust Existing Home Sales data released on Thursday. The US Dollar Index (DXY) refreshes a monthly high at 104.41.

Greenback-denominated Gold tends to face liquidity outflows when the US Dollar strengthens. The outlook for the US economy improved after the Federal Reserve upwardly revised growth forecasts for 2024. The Fed sees the US Gross Domestic Product (GDP) growing by 2.1%, up from the 1.4% it projected in December.

10-year US Treasury yields fall to 4.24% as the Fed reiterated on Wednesday that it expects three interest-rate cuts this year. Fed officials stuck to their outlook from December even though the consumer and producer price inflation remained sticky in February. US bond yields remain inside Thursday’s trading range, awaiting a fresh trigger for further guidance.

Daily digest market movers: Gold price drops as US Dollar strengthens

• Gold's price is pressured by the US Dollar’s strength. The appeal for the Greenback strengthened after the Swiss National Bank (SNB) emerged as leading the global rate-cut cycle. The SNB surprisingly reduced interest rates by 25 basis points (bps) to 1.50% on Thursday. This has increased optimism among market participants about other central banks following the same pattern, particularly in economies where inflation is decelerating and risks of a recession are high.
• The European Central Bank (ECB), the Bank of England, and the Bank of Canada (BoC) are also expected to start considering rate cuts soon. Due to their poor economic outlook, rate cuts could be aggressive in the longer term.
• Like other central banks, market participants anticipate that the Federal Reserve will also begin cutting interest rates this year. However, the Fed is not expected to rush for rate cuts as the US inflation is sticky and the US economic outlook is upbeat. The US economy exhibits a firm footing on the grounds of consumer spending and the labor market, providing time for the Fed to observe more data before moving to cuts.
• This week, the Gold price saw a strong rally after the Fed stuck to projections of three rate cuts for 2024. Fed Chair Jerome Powell said in his monetary policy statement that the story of easing price pressures is intact despite recent hot inflation readings. 
• Though the Fed maintained its view of three rate cuts, it was clear from its side that rate cuts would be appropriate only if it gains greater confidence that inflation will sustainably come down to the 2% target. Assets that pay no interest, such as Gold, face downside pressure when the Fed keeps interest rates higher for a longer period.

Technical Analysis: Gold price falls sharply from $2,220 as oscillators turn overbought

Gold price drops significantly to $2,162 from its all-time high of $2,222. Profit-booking dragged the Gold price as momentum oscillators turned extremely overbought on the daily time frame. This doesn’t exhibit a bearish reversal as the asset could rebound after oscillators cool down. The 14-period Relative Strength Index (RSI) drops after reaching a little above 84.00. The RSI (14) is considered extremely overbought when it climbs above 80.00.

The near-term demand for the Gold price remains strong as the 20-day Exponential Moving Average (EMA) at $2,137 is sloping higher.

On the upside, the Gold price could face resistance near the 161.8% Fibonacci extension at $2,250. The Fibonacci tool is plotted from December 4 high at $2,144.48 to December 13 low at $1,973.13. On the downside, December 4 high at $2,144.48 will support the Gold price bulls.