Created
: 2024.07.04
2024.07.04 11:26
Gold price (XAU/USD) attracts some buyers for the second straight day on Thursday and looks to build on the overnight strong move up to a nearly two-week peak. The US macro data published on Wednesday pointed to signs of weakness in the labor market and a softening economy. Moreover, the minutes of the last FOMC meeting revealed that the majority of policymakers said the US economic growth is gradually cooling. This reinforces bets that the Federal Reserve (Fed) will cut rates in September, triggering a sharp fall in the US Treasury bond yields and dragging the US Dollar (USD) to a three-week trough. Furthermore, geopolitical tensions, along with political uncertainty in the US and Europe, suggest that the path of least resistance for the non-yielding yellow metal is to the upside.
That said, the underlying strong bullish sentiment across the global equity markets could act as a headwind for the safe-haven Gold price amid relatively lighter trading volumes on the back of the Independence Day holiday in the US. Traders also seem reluctant and might prefer to wait for the release of the closely-watched US monthly employment details - popularly known as the Nonfarm Payrolls (NFP) report - on Friday before placing fresh directional bets. Nevertheless, the fundamental backdrop seems tilted firmly in favor of bulls and supports prospects for a further near-term appreciating move for the XAU/USD.
From a technical perspective, the overnight breakout through the 50-day Simple Moving Average (SMA), along with the fact that oscillators on the daily chart have again started gaining positive traction, favor bullish traders. Some follow-through buying and a sustained strength beyond the $2,365 area will reaffirm the constructive outlook, setting the stage for a move towards reclaiming the $2,400 mark. The Gold price might then extend the positive momentum and aim to challenge the all-time peak, around the $2,450 zone touched in May.
On the flip side, any meaningful pullback now seems to attract fresh buyers near the 50-day SMA resistance breakpoint, around the $2,339-2,338 region. The next relevant support is pegged near the $2,319-2,318 area, which, if broken, could make the Gold price vulnerable to weaken further below the $2,300 mark and test the $2,285 horizontal zone. A convincing break below the latter will be seen as a fresh trigger for bearish traders and expose the 100-day SMA support, currently near the $2,258 area before the metal drops to the $2,225-2,220 region and the $2,200 round-figure mark.
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
: 2024.07.04
Last updated
: 2024.07.04
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