Gold consolidates below all-time peak, bullish potential seems intact
- Gold price struggles to capitalize on last week’s blowout rally to a fresh record peak.
- Extremely overbought conditions cap gains for the metal amid ahead of the US CPI.
- Bets for a Fed rate cut in June act as a headwind for the USD and should limit losses.
Gold price (XAU/USD) is seen oscillating in a range during the Asian session on Monday and consolidating its recent blowout rally to the $2,200 neighbourhood, or a fresh record high touched on Friday. A spike in the US unemployment rate to a two-year high in February reinforced expectations that the Federal Reserve (Fed) will start cutting interest rates in June. This keeps the US Treasury bond yields depressed, which fails to assist the US Dollar to capitalize on its recovery from the lowest level since mid-February and acts as a tailwind for the non-yielding yellow metal.
Bullish traders, however, seem reluctant to place fresh bets around the Gold price amid extremely overbought conditions on the daily chart and ahead of the release of the latest US consumer inflation figures on Tuesday. The data will play a key role in influencing expectations about the Fed’s rate-cut path, which, in turn, will drive the USD demand and provide a fresh impetus to the non-yielding yellow metal. In the meantime, Fed rate cut bets, along with the prevalent cautious market mood, might continue to lend support to the safe-haven XAU/USD and limit any corrective slide.
Daily Digest Market Movers: Gold price seems poised to appreciate further amid rising June Fed rate cut bets
- Data released on Friday revealed that the US unemployment rate rose to its highest level in two years, lifting bets for a June rate cut by the Federal Reserve and pushing the Gold price to a fresh record high.
- The headline NFP showed that the US economy added 275 new jobs in February as compared to the 200K estimated, though the previous month’s reading was revised down to 229K from the 353K reported.
- Adding to this, wage inflation, as measured by the change in the Average Hourly Earnings, rose by 4.3% on a yearly basis, also falling short of market expectations and January’s growth of 4.4%.
- The possibility of a May interest rate cut by the Fed climbed to around 30% after the crucial jobs report, though the June policy meeting is still the most likely expected timing for any such move.
- The yield on the 10-year US government bond dived to a more than one-month trough, dragging the US Dollar to its lowest level since mid-January and benefitting the non-yielding metal.
- A modest USD uptick prompts some intraday sellers during the Asian session on Monday, albeit firming expectations for an imminent shift in the Fed’s policy stance should help limit losses.
- Furthermore, geopolitical tensions, along with expectations that the global economy could weaken in 2024, might continue to drive flows towards the safe-haven XAU/USD and act as a tailwind.
- Investors now look forward to the release of the latest US consumer inflation figures on Tuesday for fresh cues about the Fed’s rate-cut path and before positioning for the next leg of a directional move.
Technical Analysis: Gold price bulls turn cautious amid overbought RSI, dip-buying should help limit the downside
From a technical perspective, last week’s breakout through the previous record high, around the $2,144 area, favours bullish traders and supports prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and makes it prudent to wait for some near-term consolidation or a modest pullback before placing fresh bullish bets.
Any meaningful corrective slide, however, is more likely to find decent support near Friday’s swing low, around the $2,154 region, which should now act as a key pivotal point for intraday traders. A convincing break below might prompt some technical selling and drag the Gold price further towards the $2,125 intermediate support en route to the $2,100 round figure. On the flip side, bulls might now wait for a move beyond the $2,200 mark, above which the XAU/USD will enter uncharted territory and build on its recent strong gains registered over the past month or so.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | 0.02% | -0.01% | 0.15% | 0.14% | 0.09% | 0.00% | |
| EUR | -0.01% | 0.03% | -0.04% | 0.15% | 0.13% | 0.08% | -0.01% | |
| GBP | -0.02% | -0.01% | -0.04% | 0.13% | 0.12% | 0.07% | -0.01% | |
| CAD | 0.02% | 0.03% | 0.04% | 0.16% | 0.14% | 0.11% | 0.01% | |
| AUD | -0.15% | -0.15% | -0.14% | -0.17% | -0.02% | -0.06% | -0.15% | |
| JPY | -0.12% | -0.13% | 0.13% | -0.16% | 0.03% | -0.03% | -0.14% | |
| NZD | -0.09% | -0.09% | -0.07% | -0.11% | 0.06% | 0.04% | -0.09% | |
| CHF | 0.00% | 0.02% | 0.03% | -0.01% | 0.16% | 0.12% | 0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
US Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.