- The price of Gold falls due to the moderation of hopes for a rate cut by the Fed.
Strong US retail sales fuel uncertainty over the Fed's interest rate cut timeline. - Worsening tensions in the Middle East continue to support the price of Gold.
The price of Gold (XAU/USD) falls after facing selling pressure near the crucial resistance of $2,400 in the American session on Tuesday. The precious metal is pressured by the rise in the US dollar and Treasury yields, after strong March retail sales data in the United States increased doubts over the timing of the Federal Reserve (Fed) first rate cut.
The 10-year US Treasury yield rises to 4.63%, marking a new five-month high. Financial markets anticipate that the Fed will begin to reduce its interest rates starting in September. Furthermore, traders see only two cuts instead of three, as most Fed policymakers predict in the latest dot chart. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, rises to 106.30.
Rising bond yields weigh on Gold as it increases the opportunity cost of investing in it. However, Gold has performed well in recent weeks despite rising bond yields amid geopolitical tensions in the Middle East. As a safe haven asset, demand for Gold by investors and central banks increases at times of global economic uncertainty and worsening geopolitical tensions.
Daily summary of market movements: Gold price falls after good US retail sales data
- The price of Gold falls to $2,370 as it attempts to regain new all-time highs around $2,430. The strength of the US Dollar and US bond yields have been acting as a roadblock for Gold. The appeal of the US Dollar strengthens and bond yields rise higher as strong retail sales data March have deepened uncertainty about when the Federal Reserve will begin to lower its key interest rates.
- US retail sales data for March, released on Monday, indicated strong demand despite US interest rates remaining on the rise. Monthly retail sales rose a strong 0.7%, above the 0.3% forecast. February retail sales were revised up from 0.6% to 0.9%. Retail sales data is one of the leading indicators of consumer spending, which accounts for more than two-thirds of the U.S. economy. Rising retail sales suggest household demand remains strong, a factor fueling inflation.
- Strong retail sales data, combined with strong demand for labor and stronger-than-expected Consumer Price Index (CPI) data, has forced traders to scrap expectations of early rate cuts CME's FedWatch tool shows that markets are pricing in interest rates to remain unchanged in the 5.25%-5.50% range at the June and July meetings. The Fed is now expected to begin lowering rates in September.
- Meanwhile, fears that tensions in the Middle East will spread beyond Gaza keep demand for safe-haven assets strong. Investors fear a further escalation of tensions between Israel and Iran after Israeli military chief of staff Herzi Halev said they would respond to Iran's attack on its territory, in which hundreds of drones and missiles were fired, reports AlJazeera. US President Joe Biden said he will not support Israel's counterattack.
Technical analysis: The price of Gold fails to recover $2,400
The price of Gold falls after failing to recover new lifetime highs near $2,430. The precious metal's upside remains limited as momentum oscillators are cooling after becoming extremely overbought. On the daily chart, the 14-period Relative Strength Index (RSI) is retreating slightly after peaking around 85.00. Longer-term demand is intact as the RSI remains in the bullish range of 60.00-80.00.
On the downside, the April 5 low near $2,268 and the March 21 high at $2,223 will be the main support zones for the price of Gold.
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental 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, since it does not depend on any specific issuer or government.
Who buys more Gold?
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.
What correlation does Gold have with other assets?
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, the price of 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.
What does the price of Gold depend on?
The price of Gold 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. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, 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.
