Created
: 2024.04.09
2024.04.09 19:48
Gold price (XAU/USD) keeps moving higher due to fresh escalation in Israel-Hamas tensions in the Middle East region. The precious metal continues its winning spell for the third trading session on Tuesday as strong demand for safe-haven assets amid deepening geopolitical tensions keeps offsetting the negative impact of waning expectations for the Federal Reserve (Fed) pivoting to rate cuts in June.
This week, Gold's firm appeal in the near term will be tested by the United States Consumer Price Index (CPI) data for March, which will be published on Wednesday. Monthly headline and core CPI data are expected to have risen 0.3%, higher than the pace of 0.17% required for inflation to return to the 2% target.
Higher insurance costs, portfolio management fees, and rising rentals are expected to keep inflationary pressures sticky, economists say. Stubborn inflation numbers would likely lead traders to delay their expectations that the Fed will begin reducing interest rates from June to sometime in Q3.
Meanwhile, 10-year US Treasury yields have dropped to 4.40% after Chicago Federal Reserve President Austan Goolsbee said the central bank must consider for how long interest rates will remain higher on Monday. Goolsbee warned that the Unemployment Rate could go higher if interest rates remain high for too long.
Gold price moves higher to $2,360, remaining in unchartered territory for almost a month. The rally in the precious metal persists despite momentum oscillators reaching extremely overbought levels. 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 85.00, indicating a strong bullish momentum. However, signs of RSI remains extremely overbought could lead to a correction.
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
: 2024.04.09
Last updated
: 2024.04.09
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