- Gold prices continued to decline for the third consecutive day on Monday, but lacked continued growth.
- Expectations that the Fed will continue to raise interest rates for an extended period continue to weaken XAU/USD.
- Geopolitical risks will help limit the downside ahead of the FOMC’s major policy decision on Wednesday.
Gold prices (XAU/USD) had a negative bias for the third consecutive day on Monday, falling to the $2,050 level, or its lowest in over a week during Asian trading. Robust inflation data released by the United States last week increased speculation that the Federal Reserve will stick to its high long-term interest rate policy. The outlook remains supportive of rising US Treasury yields, which is a tailwind for the US dollar (USD) and hurts the lower-yielding yellow metal.
But markets are still pricing in an increased likelihood that the Fed will start cutting rates in June. This, along with geopolitical risks, should help limit the downside in safe-haven gold prices and limit further losses. Traders may prefer to wait for further clues on the Fed’s rate cut path before placing bets on a new direction. All eyes therefore remain on the outcome of the much-anticipated two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday.
Daily Digest Market movers: Gold prices weighed down by hawkish expectations from the Fed, but bears appear less aggressive
- Data released by the US last week points to some persistence in inflation, which could force the Federal Reserve to keep interest rates higher, which could in turn weigh on low-yielding gold prices. It is expected that
- A preliminary study released Friday by the University of Michigan showed that one-year and five-year inflation expectations were little changed in March, while the U.S. Consumer Confidence Index fell to 76.5.
- Meanwhile, CME Group’s FedWatch tool shows the chance of a rate cut at the June policy meeting is around 60%, preventing USD bulls from making new bets.
- Geopolitical risks remain elevated due to the protracted Russia-Ukraine war and conflicts in the Middle East, which are seen as providing further support to safe-haven precious metals.
- Ukraine stepped up its drone attacks on Russian oil refineries last week, and Israeli Prime Minister Benjamin Netanyahu confirmed plans to move forward with an invasion of the Rafah enclave in the Gaza Strip.
- Traders may hold back on bets on a positive path and look to the outcome of Wednesday’s highly anticipated FOMC monetary policy meeting for some meaningful stimulus.
Technical analysis: Gold price could fall further after breaking horizontal support at $2,145-$2,144
From a technical perspective, further decline could see some support near the $2,145-$2,144 area, below which gold price could accelerate its decline to the next relevant support near the $2,128-$2,127 zone. There is sex. The corrective slide could further expand towards the $2,100 round figure, which should serve as a strong base for XAU/USD.
On the flip side, the $2,175-$2,176 area appears to be emerging as a strong near-term barrier, and if cleared, gold should be able to challenge the record highs near the $2,195 area touched last week. is. Follow-through buying above the $2,200 mark would set the stage for a resumption of the uptrend seen since the beginning of this month.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession could cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
