- Gold price attracts buying at lower levels amid expectations of a Fed rate cut in June and a softer risk tone.
- The rally lacks continuation amid uncertainty over the Fed's rate cut path.
- Investors hope US macroeconomic data will boost the market ahead of next week's FOMC meeting.
The price of Gold (XAU/USD) gains some positive traction on Friday and reverses much of the previous day's decline near the $2,150 level, the weekly low. Despite the rally, the precious metal remains stuck in a known range it has maintained since earlier this week, as investors seek more clarity on the Federal Reserve's (Fed) rate cut path before opening new directional positions. Therefore, the market's attention will remain focused on the FOMC's upcoming two-day monetary policy meeting, which begins next Tuesday.
Meanwhile, the higher-than-expected US Producer Price Index (PPI) fueled speculation that the US central bank could delay interest rate cuts. However, markets continue to believe that the Federal Reserve will begin cutting rates in June, which is reinforced by a further decline in US Treasury yields and lends some support to the price of Gold. That said, a modest rally in the US Dollar (USD) should limit any significant appreciation move for the yellow metal.
The US economic docket includes the Empire State Manufacturing Index, Industrial Production and the Preliminary Michigan Consumer Sentiment Index. This data, together with the yield of US bonds, will influence the dynamics of the Dollar. Aside from this, the broader risk sentiment should help generate short-term opportunities around the price of Gold. However, the all-time high reached last Friday.
Daily Market Drivers Summary: Gold Price Lacks Firm Near-Term Direction Amid Fed Rate Cut Uncertainty
- Data released on Thursday showed that US producer prices rose more than expected in February, which could force the Federal Reserve to keep interest rates elevated and spark some selling around the price of gold.
- The US Bureau of Labor Statistics reported that the Producer Price Index for final demand rose 1.6% year-over-year in February, compared with the previous month's upwardly revised 1% figure and market estimates of the 1.1%.
- Separately, the US Department of Labor (DOL) released its usual initial jobless claims data, which showed that the number of people filing for unemployment insurance for the first time unexpectedly fell to 209,000 for the week. pass.
- That largely overshadowed softer U.S. retail sales figures, which rose 0.6% in February and pointed to a slowdown in consumer spending in the first quarter, amid rising inflation and high transportation costs. indebtedness.
- Meanwhile, the CME Group's FedWatch tool indicates that markets continue to price the possibility of the Fed cutting interest rates at the June policy meeting at around 60%, helping to limit the metal's losses. yellow, which offers no returns.
- Investors are becoming more cautious about the possibility of more hawkish signals from the Fed, which is reflected in the generally weaker tone of equity markets and lends additional support to the safe-haven XAU/USD.
- Russia moved tactical nuclear weapons from its borders to neighboring Belarus, closer to NATO territory, after President Vladimir Putin threatened a broader military confrontation with NATO over the alliance's support for Ukraine.
- Friday's US economic agenda includes the release of the Empire State manufacturing index, industrial production figures and the University of Michigan's preliminary consumer sentiment index.
- However, attention will remain focused on the next monetary policy meeting of the Federal Open Market Committee (FOMC), which begins next Tuesday, and which could offer new clues about the path of Fed rate cuts and determine the trajectory in the short term of the yellow metal.
Technical Analysis: Gold bulls are not ready to give up yet, support at $2,150 is key
From a technical point of view, the range-bound movement of Gold price since the beginning of the week is due to the recent rally and could still be considered a bullish consolidation phase. The lower limit of said range, near the $2,152-$2,150 area, could continue to defend the immediate downtrend. A convincing break below that region could drag the price of Gold to the next relevant support near the $2,128-$2,127 area. The corrective slide could extend further towards the round $2,100 level, which should act as a solid base for XAU/USD.
On the other hand, the $2,178-$2,180 zone appears to have become a solid and immediate barrier that, if overcome, would allow the price of Gold to challenge the all-time high around the $2,195 zone reached last week. Continuation buying above the $2,200 level would provide a new trigger for the bulls and lay the groundwork for the resumption of an uptrend consolidated since the beginning of this month.
Dollar Quote this week
The following table shows the percentage change of the United States Dollar (USD) against the main currencies this week.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.58% | 0.89% | 0.39% | 0.84% | 0.99% | 1.22% | 0.80% | |
| EUR | -0.58% | 0.31% | -0.19% | 0.26% | 0.41% | 0.64% | 0.23% | |
| GBP | -0.90% | -0.32% | -0.51% | -0.05% | 0.12% | 0.33% | -0.09% | |
| CAD | -0.40% | 0.18% | 0.50% | 0.44% | 0.57% | 0.82% | 0.40% | |
| AUD | -0.85% | -0.26% | 0.05% | -0.45% | 0.15% | 0.41% | -0.04% | |
| JPY | -1.00% | -0.45% | 0.13% | -0.61% | -0.16% | 0.22% | -0.21% | |
| NZD | -1.23% | -0.65% | -0.34% | -0.85% | -0.39% | -0.25% | -0.43% | |
| CHF | -0.81% | -0.22% | 0.09% | -0.41% | 0.04% | 0.18% | 0.42% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change in the box will represent EUR (base)/JPY (quote).
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, aside 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 Turkey 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.
