Gold price slides back closer to the overnight swing low amid modest USD uptick
- Gold price attracts some sellers as a modest USD strength prompts some profit-taking.
- Fed rate cut bets should cap the US recovery and support the non-yielding yellow metal.
- Trade jitter and rising geopolitical tensions could further limit losses for the XAU/USD.
Gold price (XAU/USD) meets with a fresh supply during the Asian session on Friday and slides to the $3,030 area in the last hour, back closer to the overnight swing low. The US Dollar (USD) trades with a positive bias for the third successive day and prompts bulls to lighten their bets around the commodity heading into the weekend. That said, a combination of factors might continue to offer some support to the bullion, which remains on track to register gains for the third straight week.
Investors remain concerned about US President Donald Trump's aggressive policies and their impact on the global economy. Apart from this, persistent geopolitical risks stemming from conflicts in the Middle East and the protracted Russia-Ukraine war should continue to act as a tailwind for the safe-haven Gold price. Furthermore, bets that the Federal Reserve (Fed) will resume its rate-cutting cycle should cap the USD gains and contribute to limiting losses for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price is pressured by modest USD strength; downside potential seems limited
- The US Dollar attracts some buyers for the third straight day and looks to build on this week's bounce from a multi-month low, exerting some downward pressure on the Gold price during the Asian session on Friday.
- Investors remain worried about US President Donald Trump's threatened reciprocal tariffs, which he said will come into effect on April 2. This comes on top of a flat 25% duty on steel and aluminum since February.
- Both Russia and Ukraine stepped up aerial attacks on Thursday amid truce talks, with Ukraine striking Russia’s Engels airbase in the Saratov region with attack drones, causing a fire and explosions in the area.
- Furthermore, Ukraine’s air force said on Thursday that Russia had launched 171 drones over its territory. Meanwhile, Russian and US officials are scheduled to hold talks on Ukraine in Saudi Arabia on Monday.
- Israel resumed heavy strikes across Gaza on Tuesday, breaking the ceasefire with Hamas that was in place since late January. Moreover, Hamas fired three rockets at Israel on Thursday, without causing casualties.
- The Federal Reserve indicated that it would deliver two 25 basis points rate cuts by the end of this year and also revised down its growth outlook amid the uncertainty over the impact of Trump's aggressive trade policies.
- Adding to this, Fed Chair Jerome Powell said that tariffs are likely to dampen economic growth. Investors now see the US central bank lowering borrowing costs at the June, July, and October monetary policy meetings.
- The prospects for further policy easing by the Fed might hold back the USD bulls from placing aggressive bets and act as a tailwind for the non-yielding yellow metal in the absence of any relevant US macro releases.
Gold price is likely to attract dip-buyers at lower levels and find decent support near the $3,000 psychological mark
From a technical perspective, the corrective slide witnessed over the past two days could be attributed to some profit-taking amid slightly overbought conditions on the daily chart. That said, the lack of any follow-through selling warrants some caution for bearish traders and before confirming that the Gold price has topped out in the near term. Hence, any further decline below the $3,023-3,022 area might still be seen as a buying opportunity and remain limited near the $3,000 psychological mark.
The latter should act as a key pivotal point for short-term traders, which if broken decisively might prompt some technical selling and drag the Gold price to the $2,980-2,978 intermediate support en route to the $2,956 area. The downward trajectory could extend further towards the $2,930 support before the XAU/USD drops to the $2,900 mark and aims towards testing last week's swing low, around the $2.880 region.
On the flip side, the $3,057-3,058 zone, or the all-time peak touched on Thursday, now seems to act as an immediate hurdle. A sustained strength beyond will be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent well-established uptrend witnessed over the past three months 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.