- Gold retreats modestly after failing to sustain gains despite falling US Treasury yields and weakening US Dollar.
- XAU/USD fails to capitalize on the release of weaker-than-expected S&P Global PMIs, fueling speculation about possible Fed rate cuts.
- Geopolitical tensions ease slightly, affecting Gold's role as a safe-haven asset in times of turmoil.
The price of Gold posted modest losses late Tuesday in the North American session after reaching a high of $2,334, supported by a weaker-than-expected S&P Global Purchasing Managers' Index (PMI) report. Buyers have been unable to take advantage of the dollar's weakness, while US Treasury yields fell from the short end to the belly of the yield curve.
The XAU/USD pair is trading at $2.323, losing 0.11%. The US 10-year Treasury yield remains firm at 4.402%, while US real yields, which are inversely correlated with Gold prices, fall 0.41% to 2.192%, a tailwind for the gold metal.
Geopolitical risks, despite persisting in the minds of operators, calmed down after Iran's attack on Israel and the latter's retaliation. The S&P Global data revived rate cut hopes among investors following hawkish rhetoric last week by Federal Reserve (Fed) officials led by Chairman Jerome Powell. One of the FOMC's more dovish members, Chicago Fed Austan Goolsbee, echoed his comments, adding that progress on inflation has “stalled.”
Daily summary of market movements: Gold remains stable, although tilts lower after Monday's drop
- S&P Global revealed that US business activity in the manufacturing sector contracted. This month, the manufacturing PMI fell from 51.9 to 49.9 points. On the other hand, the Services Index and the Composite Index slowed from 51.7 and 52.1 to 50.9 in both readings.
- Other data showed new home sales hit a six-month high, according to the US Commerce Department, while building permits remained in contraction territory despite being revised upward from -4.3. % to -3.7%.
- The US Dollar Index (DXY), which tracks the dollar against a basket of six other currencies, fell 0.44% to 105.68.
- This week, the Gross Domestic Product (GDP) for the first quarter of 2024 will be published on the United States economic agenda. Analysts estimate that GDP grew by 2.5%, below the 3.4% in the fourth quarter of 2023.
- Additionally, the US Bureau of Economic Analysis will release the Fed's preferred inflation indicator, the March personal consumption expenditure (PCE) price index. A softer-than-expected reading could prompt gold traders to buy the yellow metal and aim to refresh all-time highs. Otherwise, a rise in prices could underpin US Treasury yields and the dollar, a headwind for the non-yielding metal.
- The PCE is expected to rise, while the underlying will decrease from 2.8% to 2.6% annually.
- Data from the Chicago Board of Trade (CBOT) suggests traders expect the federal funds rate to end 2024 at 4.955%, down from 4.99% on Monday.
Technical analysis: Gold price risks falling below $2,300
After falling on Monday and forming a “bearish engulfing” chart pattern, the price of Gold hit a two-week low of $2,291. However, XAU/USD buyers pushed prices above the $2,300 figure, but they are not out of the woods yet. For them to remain in control, they must lift Gold above the psychological level of $2,350, which could pave the way to challenge $2,400.
If they break that level, next would be last Friday's high of $2,417, followed by the all-time high of $2,431.
On the other hand, if XAU/USD sellers achieve a daily close below the April 15 daily low of $2,324, this would pave the way for a test of $2,300. A break of this last level would expose the March 21 high at $2,222.
Frequently asked questions about Gold
Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, as it is not dependent on any issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, Gold tends to rise, allowing 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 the price of Gold, 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 fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. Being a non-yielding asset, Gold tends to rise with lower interest rates, while the higher cost of money usually weighs on the yellow metal. However, most of the movements depend on the behavior of the US Dollar (USD), as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
