Gold price slumps on risk aversion, high US yields
- Gold price starts week on back foot as high US yields dent appetite for the non-yielding metal.
- Fed officials signal only one rate cut in 2024 via Minneapolis Fed’s Neel Kashkari.
- Upcoming US economic data releases, including Retail Sales and Industrial Production, to influence Gold price.
- Precious metals traders await US Retail Sales and Industrial Production on June 18.
Gold prices retreated on Monday due to rising US Treasury bond yields after Federal Reserve (Fed) officials decided to keep rates unchanged and revised their expectations on rate cuts from three to one later in the year. Therefore, the XAU/USD trades at $2,317, down 0.63%, after retreating from the daily high of $2,332.
The golden metal is on the defensive as US Treasury bond yields advance after Fed officials remained hawkish. Despite that, the Greenback failed to gain traction and remains one of the laggards in the FX space.
Over the weekend, the Minneapolis Fed’s Neel Kashkari discussed monetary policy, saying that “it’s a reasonable prediction” that the Fed will ease policy by just 25 basis points (bps) in 2024. This would keep US bond yields high, making it less appealing to hold bullion as the fed funds rate remains lofty.
Earlier, Philadelphia Fed President Patrick Harker said that if the economy evolves as expected, one rate cut in 2024 is expected. He said the policy is restrictive and positioned to bring inflation to 2%.
Gold traders will watch the release of Retail Sales, Industrial Production, Initial Jobless Claims, and the S&P Global Purchasing Managers Index (PMI) figures.
Data from the Chicago Board of Trade (CBOT) shows traders expect 35 bps of easing during the year via December’s 2024 fed funds rate contract.
News that the People’s Bank of China has paused its 18-month bullion buying spree has weighed on the precious metal. PBOC holdings held steady at 72.80 million troy ounces of Gold in May.
Daily digest market movers: Gold price flops on higher US yields
- Rising US Treasury yields remained high, capping Gold’s advance. The US 10-year T-yield is up almost six bps to 4.281%.
- US Dollar Index (DXY) decreased by 0.18% to 105.34, putting a lid on Gold price.
- Despite US CPI report showing disinflation process continuing, Fed Chair Jerome Powell commented that they remain “less confident” about the progress on inflation.
Technical analysis: Gold price sellers regain control as prices are headed toward $2,300
Gold price is neutral to downwardly biased as the Head-and-Shoulders chart pattern remains intact, hinting that the golden metal could dip below the $2,200 mark. Momentum shows that sellers are gathering steam with the Relative Strength Index (RSI) diving further into bearish territory, opening the door for further losses.
If XAU/USD drops below $2,300, the first support would be the May 3 low of $2,277, followed by the March 21 high of $2,222. Further losses lie beneath, as sellers would eye the Head-and-Shoulders chart pattern objective from $2,170 to $2,160.
Otherwise, if Gold extends its gains past the June 7 cycle high of $2,387, it will be ready to test the $2,400 figure.
Gold FAQs
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.