Gold price fundamental backdrop seems tilted in favor of bullish traders
- Gold price retreats from a near three-month top amid an uptick in the US bond yields and the USD.
- Bets for further interest rate cuts by the Fed might hold back the USD bulls from placing fresh bets.
- Concerns about Trump’s tariff plans should further lend support to the safe-haven precious metal.
Gold price (XAU/USD) drifts lower during the Asian session on Thursday and moves away from its highest level since early November, around the $2,763-2,764 area touched the previous day. The US Dollar (USD) looks to build on the overnight bounce from the monthly low amid an uptick in the US Treasury bond yields, which, in turn, is seen exerting some downward pressure on the commodity. Apart from this, the underlying bullish sentiment around the equity markets undermines demand for the safe-haven precious metal.
That said, a combination of factors could act as a tailwind for the Gold price and warrants some caution before confirming that the one-month-old uptrend has run out of steam. Signs of abating inflation in the US revived bets that the Federal Reserve (Fed) will cut rates twice this year. This could act as a headwind for the US bond yields and the USD. Moreover, uncertainty surrounding US President Donald Trump’s tariff plans, which could trigger trade wars and elevate market volatility, should help limit the downside for the XAU/USD.
Gold price ticks lower as rebounding US bond yields underpin the USD; downside seems limited
- The US Dollar holds steady above its lowest level since late December touched on Wednesday amid a modest rebound in the US Treasury bond yields and prompts some selling around the Gold price on Thursday.
- The lack of details about US President Donald Trump's tariff plans and easing geopolitical tensions remain supportive of the risk-on mood, which is seen as another factor undermining the safe-haven precious metal.
- Trump's proposed policies are broadly regarded as inflationary, which, in turn, might compel the Federal Reserve to stick to its hawkish stance and keep interest rates higher for longer to rein in rising price pressures.
- Investors, however, are still pricing in the possibility that the US central bank will lower borrowing costs at least two times by the end of this year. This might cap the upside for the US bond yields and the Greenback.
- Trump's speech at the World Economic Forum will be looked upon for more concrete announcements on tariffs. Apart from this, the release of the US Weekly Jobless Claims should provide some impetus to the XAU/USD.
- The Bank of Japan is scheduled to announce its decision at the end of a two-day policy meeting on Friday and is expected to raise interest rates from 0.25% to 0.50%, or the highest since the 2008 global financial crisis.
- Rate decisions from the Fed and European Central Bank are scheduled for Wednesday and Thursday next week, respectively, which could infuse volatility and provide some impetus to the non-yielding yellow metal.
Gold price seems poised to challenge the all-time top; the $2,725-2,720 area holds the key for bulls
From a technical perspective, any subsequent slide is more likely to find decent support near the $2,625-2,620 strong horizontal resistance breakpoint, now turned support. Some follow-through selling could drag the Gold price to the $2,700 mark, which if broken decisively should pave the way for deeper losses. The XAU/USD might then fall towards the $2,665-2,662 area en route to the 2,627-2,622 confluence. The latter comprises the 100-day Exponential Moving Average (EMA) and a short-term ascending trend line, which, in turn, should act as a key pivotal point for short-term traders.
On the flip side, the overnight swing high, around the $2,763-2,764 area, now seems to offer some resistance, above which the Gold price could aim to challenge the all-time peak, around the $2,790 region touched in October. This is closely followed by the $2,800 mark, which if conquered will be seen as a fresh trigger for bullish trades and set the stage for an extension of the recent well-established uptrend witnessed over the past month or so.
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.