Gold price (XAU/USD) attracted some dip-buying near the $2,432 area on Thursday and climbed over 1.5% intraday amid the risk of widening conflict in the Middle East. The precious metal, however, stalled the intraday move up near the $2,470 hurdle following the release of the upbeat US macro data, which eased fears of a recession in the world's largest economy and dashed hopes for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, pushed the US Treasury bond yields and provided a goodish lift to the US Dollar (USD). Apart from this, the risk-on rally in the US equity markets contributed to capping gains for the commodity.
Nevertheless, the Gold price settled with modest intraday gains, snapping a two-day losing streak, and held steady above the $2,450 level during the Asian session on Friday. Investors still seem convinced that the Fed will begin its rate-cutting cycle in September. This keeps a lid on any meaningful upside for the US bond yields and the USD, which, in turn, continues to act as a tailwind for the non-yielding yellow metal. Traders now look to the second-tier US macro data – Building Starts and Housing Permits, along with the Preliminary Michigan Consumer Sentiment Index – for short-term opportunities later during the early North American session.
From a technical perspective, the overnight failure near the $2,470 resistance makes it prudent to wait for some follow-through buying before positioning for any further gains. Given that oscillators on the daily chart are holding in positive territory, the Gold price might then aim to surpass the all-time peak, around the $2,483-$2,484 area touched in July, and conquer the $2,500 psychological mark. A sustained strength beyond the latter will confirm a breakout through a one-month-old broader trading range and could be seen as a fresh trigger for bullish traders, setting the stage for a further near-term appreciating move.
On the flip side, the $2,447-2,445 horizontal zone now seems to protect the immediate downside ahead of the $2,430-2,429 area and the weekly low, around the $2,424 region. Some follow-through selling could make the Gold price vulnerable to weaken further below the $2,400 mark and test the 50-day Simple Moving Average (SMA) pivotal support, currently pegged near the $2,383 region. A convincing break below the latter might expose the 100-day SMA near the $2,363-2,362 area and the late July swing low, around the $2,353 zone. Failure to defend the said levels should pave the way for deeper losses.
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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