Created
: 2024.04.15
2024.04.15 20:26
Gold price (XAU/USD) struggles for a firm footing near $2,350 in Monday's European session after posting hefty losses on Friday. The precious metal loses shine in the very-short term as investors expect that geopolitical tensions will not escalate further. United States President Joe Biden said that his nation will not support the counterattack from Israel on Iran.
Receding Federal Reserve (Fed) rate cut bets for the June and July meetings, combined with less fears of further escalating Iran-Israel tensions, have put some pressure on Gold. The 10-year US Treasury yields rally to 4.55% as Fed policymakers support keeping interest rates restrictive before they get convinced that inflation will return to the required rate of 2%. Higher bond yields weigh on the Gold price as they increase the opportunity cost of holding an investment in it.
The US Dollar Index (DXY), which tracks the US Dollar's value against six major currencies, prints a fresh five-month high near 106.00 ahead of the monthly Retail Sales data for March, which will be published at 12:30 GMT. Robust spending by US households remains a major catalyst to higher inflation, allowing businesses to charge higher from consumers. The monthly Retail Sales are expected to have grown modestly by 0.3% compared to the prior reading of 0.6%.
Gold price corrects from new all-time highs formed around $2,430. The precious metal faces pressure as momentum oscillators are overheated. The 14-period Relative Strength Index (RSI) drops slightly after peaking around 85.00. The near-term demand is intact as the RSI remains in the bullish range of 60.00-80.00. However, momentum oscillators are cooling down after turning extremely overbought.
On the downside, April 5 low near $2,268 and March 21 high at $2,223 will be major support areas for the Gold price.
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
: 2024.04.15
Last updated
: 2024.04.15
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