Gold price (XAU/USD) continues with its struggle to gain any meaningful traction and extends its sideways consolidative price move during the Asian session on Tuesday. Growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer amid signs of still sticky inflation assists the US Dollar (USD) in attracting some dip-buying. Apart from this, easing tensions in the Middle East acts as a headwind for the safe-haven precious metal. The downside, however, remains cushioned as traders prefer to wait for cues about the Fed's rate-cut path before placing fresh directional bets.
Hence, the focus remains glued to the crucial two-day FOMC monetary policy meeting starting today and the release of the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. This will play a key role in influencing the USD demand in the near term and provide some meaningful impetus to the non-yielding Gold price. Heading into the key central bank/US data risks, Tuesday's US economic docket – featuring the Chicago PMI and the Conference Board's Consumer Confidence Index – might produce short-term trading opportunities.
From a technical perspective, the Gold price has been struggling to make it through the 200-hour Simple Moving Average (SMA) barrier over the past two days. The said hurdle, currently pegged near the $2,346 region, now coincides with the 38.2% Fibonacci retracement level of the recent pullback from the all-time peak and should act as a key pivotal point. This is followed by 50% Fibo. level, around the $2,352-2,353 area, which if cleared could lift the Gold price to the next relevant hurdle near the $2,371-2,372 region. The momentum could extend further towards the $2,400 round figure en route to the all-time peak, around the $2,431-2,432 area touched earlier this month.
On the flip side, some follow-through selling and acceptance below the 100-hour SMA could make the Gold price vulnerable to retesting last week's swing low, around the $2,292-2,291 zone, with some intermediate support near the $2,320 region. The subsequent downfall has the potential to drag the XAU/USD further towards the next relevant support near the $2,268-2,265 area.
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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