- Gold price continues losing ground on Thursday and is pressured by a combination of factors.
- The US-China trade optimism undermines the safe-haven bullion amid rising US bond yields.
- Traders now look to the US PPI and Fed Chair Jerome Powell’s speech for a fresh impetus.
Gold price (XAU/USD) drifts lower for the second straight day, also marking its third day of a negative move in the previous four, and drops to over one-month low, below the $3,150 level during the Asian session on Thursday. The optimism led by the de-escalation of a potentially damaging trade war between the US and China – the world’s two largest economies – turns out to be a key factor that continues to undermine the safe-haven bullion. Moreover, the US-China trade truce for 90 days eased concerns about a recession in the US and forced investors to pare their bets for a more aggressive policy easing by the Federal Reserve (Fed). This remains supportive of a further rise in the US Treasury bond yields and contributes to driving flows away from the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) struggles to capitalize on the previous day’s goodish bounce from the weekly low despite the aforementioned supportive fundamental backdrop. This, however, does little to lend any support to the Gold price. Even a slight deterioration in the global risk sentiment, as depicted by a generally weaker tone around the equity markets, fails to assist the precious metal in attracting any meaningful buyers. Apart from this, the overnight breakdown and close below the $3,200 mark suggests that the path of least resistance for the XAU/USD is to the downside. Traders now look forward to the release of the US Producer Price Index (PPI) and Fed Chair Jerome Powell’s appearance for cues about the rate-cut path, which should provide a fresh impetus to the commodity.
Daily Digest Market Movers: Gold price continues to be weighed down by trade optimism and reduced bets for aggressive Fed rate cuts
- The US and China agreed to slash steep tariffs for at least 90 days. Moreover, US President Donald Trump said on Tuesday that he could see himself dealing directly with Chinese President Xi Jinping on the details of a trade pact.
- This helps to ease market concerns about a downturn in the world’s largest economy and drags the safe-haven Gold price to over a one-month low on Thursday amid expectations of fewer interest rate cuts by the Federal Reserve.
- Traders are now pricing in a little over 50 basis points of Fed rate cuts for the year, down from over a full percentage point of reductions priced in last month. This lifts the benchmark 10-US Treasury yield to its highest in a month.
- Fed Vice Chair Philip Jefferson warned that announced tariffs and the uncertainty surrounding U.S. trade policy could derail any recent progress on inflation. Jefferson added that the recent inflation data show further progress toward the 2% target and described the current policy stance as well-positioned to respond to developments that may arise.
- Adding to this, Chicago Fed President Austan Goolsbee noted that some parts of the April inflation report represent the lagged nature of the data, and it will take time for current inflation trends to show up in the data. Goolsbee added that right now is a time for the US central bank to wait for more information, try to get past the noise in the data.
- Separately, San Francisco Fed President Mary Daly said that the US economy and the labor market are solid, and inflation is declining. With monetary policy moderately but not overly restrictive, the US central bank can wait to adjust interest rates amid the uncertainty and respond to whatever comes into the economy, Daly added further.
- The US Dollar bulls, however, seem reluctant and opt to wait for the release of the US Producer Price Index, due later during the North American session. Apart from this, Fed Chair Jerome Powell’s appearance will be looked upon for cues about the future rate-cut path, which will drive the USD and provide a fresh impetus to the XAU/USD pair.
- Ukrainian President Zelenskyy had said he would surely attend the first peace talks with Russia, scheduled this Thursday in Istanbul. The Kremlin, however, announced that Russian President Vladimir Putin will skip the meeting.
- The Israeli military said on Wednesday that it intercepted a missile launched from Yemen towards its territory. In a further escalation of violence in the region, an intense wave of Israeli bombing on Wednesday killed as many as 80 people in Gaza. This keeps geopolitical risks in play, though it does little to lend any support to the precious metal.
Gold price breaks below the 61.8% Fibo. level, seems vulnerable to slide further towards the $3,135-3,133 support zone
From a technical perspective, the overnight breakdown through the $3,200 mark and a subsequent slide below the 61.8% Fibonacci retracement level of the strong move up in April could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction, suggesting that the Gold price could extend the fall further towards the $3,135-3,133 support. Some follow-through selling has the potential to drag the XAU/USD pair further towards the $3,100 mark, which, if broken, might expose the next relevant support near the $3,060 region.
On the flip side, attempted recovery above the $3,168-3,170 region (61.8% Fibo. level) might now confront stiff resistance ahead of the $3,200 mark, or the Asian session peak. Any further move up might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $3,230 area, or the 50% retracement level. The latter should act as a pivotal point, above which a fresh bout of short-covering move could lift the Gold price to the $3,265 intermediate hurdle en route to the $3,300 round figure (38.2% Fibo. level).
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.