Created
: 2024.04.08
2024.04.08 20:11
Gold price (XAU/USD) records fresh all-time highs just above $2,350 on Monday. The rally in the precious metal remains unabated even though US Treasury yields increase after the robust United States Nonfarm Payrolls report for March shifted expectations for Federal Reserve (Fed) pivoting to rate cuts in the second half of this year.
10-year US Treasury yields rise to four-month highs near 4.45%. Generally, higher bond yields dampen Gold's appeal as they increase the opportunity cost of holding investment in the latter. However, the case has not held up in the last few weeks.
Fed policymakers don't see rate cuts as appropriate as robust labor market data could halt the progress in reducing inflation to the 2% target.
Even one Fed policymaker sees no need for rate cuts this year if price pressures persist. Last week, Minneapolis Fed Bank President Neel Kashkari said rate cuts won't be required this year if inflation stalls. Kashkari, who is currently not a voting member, warned: "The Fed needs to keep interest rates higher in the range of 5.25%-5.50% if inflation remains stronger than hoped". He added that "if that still does not work, further rate increases are not off the table, but they are also not a likely scenario given what we know right now," Reuters reports.
Gold price continues to add gains even though momentum oscillators turn extremely overbought - a situation when upside potential gets limited. The precious metal rallies to $2,350 but is expected to turn sideways as investors are expected to make fresh positions after the release of the US inflation data.
On the downside, March 21 high at $2,223 will be a major support area for the Gold price bulls.
The 14-period Relative Strength Index (RSI) reaches 84.00, which indicates that bullish momentum is still active. However, overbought signals have emerged.
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.
Created
: 2024.04.08
Last updated
: 2024.04.08
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