Gold price rebounds swiftly from multi-week low; lacks follow-through
- Gold price reverses an Asian session slide to over a three-week low, though it lacks follow-through.
- Recession fears continue to weigh on investor sentiment and benefit the safe-haven commodity.
- Bets for more aggressive Fed rate cuts undermine USD and also lend support to the XAU/USD pair.
Gold price (XAU/USD) stages a goodish intraday bounce from a three-week low, around the $2,972-2,971 region, touched during the Asian session on Monday – and spikes to a fresh daily high, around the $3,055 area in the last hour. Data published earlier today showed that the People’s Bank of China (PBOC) increased its state Gold reserves for the fifth consecutive month. Adding to this, the prevalent risk-off mood, recession fears, bets that a tariffs-driven US economic slowdown might force the Federal Reserve (Fed) to resume its rate-cutting cycle soon, and geopolitical risks act as a tailwind for the commodity.
The intraday move up, however, fades rather quickly as investors continue to unwind their XAU/USD bullish positions to cover losses from a broader sell-off across the global financial markets. Meanwhile, Friday's stronger-than-expected US Nonfarm Payrolls (NFP) report and Fed Chair Jerome Powell's hawkish remarks helped the US Dollar (USD) to hold comfortably above a multi-month low touched last week. This turns out to be another factor capping the gains for the Gold price. That said, dovish Fed expectations keep the USD bulls on the defensive and assist the Gold price to hold above the $3,000 mark.
Daily Digest Market Movers: Gold price draws support from a combination of factors; bulls seem reluctant to place aggressive bets
- The widening global trade war continues to fuel concerns about a global economic recession and leads to an extended sell-off in equity markets across the world. This, in turn, prompted traders to liquidate their long positions around the Gold price and raise cash to cover losses elsewhere.
- According to data released this Monday, the People’s Bank of China (PBOC) added gold to its reserves for a fifth consecutive month in March. In fact, the People's Bank of China's holding rose by 0.09 million troy ounces last month amid rising global trade and geopolitical turmoil.
- US President Donald Trump imposed reciprocal tariffs of at least 10% on all imported goods late last Wednesday, with China facing 54% levies under this new regime. In response, China’s Commerce Ministry announced on Friday that they will levy additional tariffs of 34% on all US imports.
- Meanwhile, US Commerce Secretary Howard Lutnick confirmed on Sunday that the tariffs would not be postponed and the policy would remain in place for days and weeks. Adding to this, Trump stated that there would be no deal with China unless the trade deficit is solved.
- The US Dollar struggles to capitalize on Friday's modest recovery move from a multi-month low that followed the release of the better-than-expected US Nonfarm Payrolls (NFP) report. In fact, the closely-watched jobs data showed that the economy added 228K jobs in March vs. 117K previous.
- Meanwhile, Federal Reserve (Fed) Chair Jerome Powell said that that inflation is closer to target but still slightly elevated. Powell added that Trump's tariffs could have a strong inflationary impact and that the Fed's job is to avoid temporary price hikes turning into persistent inflation.
- Investors, however, are still pricing in the possibility that the US central bank will resume its rate-cutting cycle in June and also lower borrowing costs at least four times this year. This, along with the anti-risk low, keeps the yield on the benchmark 10-year US government bond below the 4.0% mark.
- This, in turn, holds back the USD bulls from placing aggressive bets and assists the non-yielding yellow metal to stage a modest intraday bounce from a nearly four-week low touched during the Asian session on Monday. The lack of follow-through, however, warrants caution for bulls.
Gold price must surpass the $3,055 horizontal support-turned resistance to back prospects for additional gains
From a technical perspective, last week's sharp retracement slide from the all-time peak stalls ahead of the 61.8% Fibonacci retracement level of the February-April strong move up. The subsequent move up, however, falters near the $3,055 horizontal support breakpoint, now turned resistance. The latter should now act as a key pivotal point for intraday traders, above which the Gold price could climb to the $3,080 region en route to the $3,100 round figure.
On the flip side, the $3,000 psychological mark, which coincides with the 50% retracement level, now seems to protect the immediate downside ahead of the $2,972-2,971 area, or the multi-week low touched earlier this Monday. This is closely followed by the 50-day Simple Moving Average (SMA), around the $2,946 area, which if broken decisively might shift the near-term bias in favor of bearish traders and pave the way for a further depreciating move.
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.