- The price of Gold falls due to positive risk appetite, denting safe haven demand.
- Gold rose sharply on Wednesday after the Federal Reserve adopted a broad easing bias at its May meeting.
- The precious metal was boosted higher after Federal Reserve Chair Jerome Powell called further rate hikes “unlikely.”
The price of Gold (XAU/USD) is trading at $2,290 on Thursday after falling almost a percentage point due to lower safe haven demand. Market sentiment is generally positive, with Asian stocks closing higher and oil prices hovering around seven-week lows.
Gold price rebounds after Federal Reserve meeting
The price of Gold rose more than $30 an ounce after the US Federal Reserve (Fed) adopted a general easing bias at its May monetary policy meeting on Wednesday.
Bulls raised the price of Gold after the Fed decided to keep interest rates unchanged and slow the pace of reducing its US Treasury holdings, a slightly dovish move as it scales back quantitative tightening.
However, the Fed also added a hawkish line to its statement to reflect the continued stubbornness of US inflation, saying that, “in recent months, there has been a lack of further progress toward the inflation target.” of the 2% Committee”.
However, concerns that the Fed could consider raising interest rates – something that would hurt Gold – dissipated after Federal Reserve Chairman Jerome Powell called such a move “unlikely.”
In his prepared remarks, Powell omitted any reference to cutting interest rates this year, and dodged questions about whether the Fed would continue cutting rates in 2024, in the question-and-answer session. However, although the general conclusion was that rates were not going to fall in the short term, no additional increases were proposed.
Technical Analysis: Possible Deployment of the Price of Measured Gold
Gold price (XAU/USD) has met the minimum requirement to complete its bearish Measured Move price pattern after reaching the 0.681 Fibonacci price target for the final wave C at $2.286. This could mean that prices will now continue to rise.
XAU/USD 4-hour chart
The measured movement patterns are composed of three waves that trace a zig-zag. The end of wave C can be estimated based on the length of wave A. It usually has a length equal to that of A or a Fibonacci ratio of 0.681 of A.
Directionally, Gold is in no man's land: a break below the 0.681 Fib low at $2,285 would be necessary to confirm further declines to a target at $2,245 (1,000 or where A=C).
Alternatively, a break above the moving average cluster and wave B high around $2,350 could usher in a new, more bullish environment. This could lead to a retest of the $2,400 highs.
Furthermore, the Gold price trend is bullish in both the medium and long term, which generally supports the bullish trend of Gold.
Risk Sentiment FAQ
What do the terms “risk-on” and “risk-off” mean when referring to sentiment in financial markets?
In the world of financial jargon, the two terms “risk appetite (risk-on)” and “risk aversion (risk-off)” refer to the level of risk that investors are willing to bear during the investment period. reference. In a “risk-on” market, investors are optimistic about the future and are more willing to buy risky assets. In a “risk-off” market, investors begin to “play it safe” because they are worried. for the future and, therefore, buy less risky assets that are more certain to provide a return, even if it is relatively modest.
What are the key assets to follow to understand risk sentiment dynamics?
Typically, during periods of “risk appetite”, stock markets rise, and most commodities – except gold – also appreciate as they benefit from positive growth prospects. The currencies of countries that are large exporters of raw materials strengthen due to increased demand, and cryptocurrencies rise. In a “risk-off” market, Bonds – especially major government bonds – rise, Gold shines and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar benefit.
Which currencies strengthen when sentiment is “risk-on”?
The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD) and minor currencies such as the Ruble (RUB) and the South African Rand (ZAR) tend to rise in markets where there is “appetite for risk.” This is because the economies of these currencies rely heavily on commodity exports for their growth, and these tend to rise in price during periods of “risk appetite.” This is because investors anticipate higher demand for raw materials in the future due to increased economic activity.
Which currencies strengthen when sentiment is “risk averse”?
The major currencies that tend to rise during periods of “risk aversion” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The Dollar, because it is the world's reserve currency and because in times of crisis investors buy US public debt, which is considered safe because it is unlikely that the world's largest economy will go into default. The Yen, due to the increase in demand for Japanese government bonds, since a large proportion is in the hands of domestic investors who are unlikely to get rid of them, even in a crisis. The Swiss franc, because strict Swiss banking legislation offers investors greater capital protection.
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.
