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Gold price extends record-setting run despite reduced Fed rate cut bets, positive risk tone

  • Gold price builds on the recent breakout momentum and touches a fresh record high on Monday.
  • Reduced bets for a June Fed rate cut underpin the USD and might cap gains amid the risk-on mood.
  • Dip-buying should limit any corrective slide ahead of the US CPI and the FOMC minutes this week.

Gold price (XAU/USD) attracts some dip-buying in the vicinity of the $2,300 mark during the Asian session on Monday and hits a fresh all-time peak in the last hour. Expectations that the Federal Reserve (Fed) will eventually start cutting rates in 2024, along with buying from the Chinese central bank, have been significant drivers of the precious metal’s blowout rally over the past two weeks or so. That said, extremely overstretched conditions on the daily chart might hold back traders from placing fresh bullish bets amid easing geopolitical tensions and a positive risk tone, which tends to undermine the safe-haven precious metal.

Meanwhile, the upbeat US monthly employment details released on Friday suggested that the Federal Reserve (Fed) may delay cutting interest rates and force investors to scale back their expectations for three rate cuts in 2024 to two. The outlook keeps the US Treasury bond yields elevated and acts as a tailwind for the US Dollar (USD), which, in turn, might further contribute to capping the upside for the non-yielding Gold price. Investors might also prefer to move to the sidelines ahead of this week’s release of the US consumer inflation figures for March and the FOMC meeting minutes on Wednesday.

Daily Digest Market Movers: Gold price draws support from expectations for lower interest rates and central bank buying

  • A buying spree by China’s central bank, along with expectations that lower US interest rates are on the horizon, pushed the Gold price to a fresh record high on the first day of a new week. 
  • Official data released Sunday showed that bullion held by the People’s Bank of China rose by 0.2% to 72.74 million troy ounces last month, marking the 17th consecutive month of increase.
  • The markets have been pricing in an even chance that the Federal Reserve (Fed) will start its rate-cutting cycle at the June policy meeting, which further benefits the non-yielding yellow metal.
  • The global risk sentiment got a boost after Israel withdrew more soldiers from southern Gaza and committed to fresh talks on a potential ceasefire, easing geopolitical tensions in the Middle East.
  • The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) increased by 303K in March vs the 200K expected and the previous month’s downwardly revised reading. 
  • Other details of the publication showed that the Unemployment Rate edged lower to 3.8% from 3.9% in February amid a rise in the Labor Force Participation Rate to 62.7% from 62.5% previously.
  • The data forced investors to scale back their expectations for a total number of rate cuts in 2024 to two as against three rate cuts projected by the Fed, which pushes the US Treasury bond yields higher. 
  • The rate-sensitive two-year US government bond and the benchmark 10-year Treasury note surged to a four-month peak on Friday, underpinning the USD and capping gains for the commodity. 
  • Traders now look to the release of the US consumer inflation figures for March and the FOMC meeting minutes on Wednesday for cues about the Fed’s rate-cut path and a fresh directional impetus. 

Technical Analysis: Gold price needs to consolidate before the next leg up amid extremely overbought RSI on the daily chart

From a technical perspective, Friday’s strong move up and acceptance above the $2,300 round-figure mark could be seen as a fresh trigger for bullish traders and support prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions. This, in turn, makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. Nevertheless, the setup suggests that the path of least resistance for the Gold price is to the upside, and any corrective decline might still be seen as a buying opportunity.

Meanwhile, the Asian session low, around the $2,305-2,300 area, now seems to protect the immediate downside ahead of Friday’s swing low, around the $2,267-2,265 region. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $2,223-2,222 zone en route to the $2,200 mark. The latter should act as a strong base for the XAU/USD, which, if broken decisively, might shift the near-term bias in favor of bearish traders and pave the way for a further depreciating move.

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.