Gold price traded lower on Tuesday due to the renewed demand for the US Dollar (USD). The recent US jobs data for April, showing a slowdown in job growth, has fueled speculation of potential rate cuts by the Federal Reserve (Fed) in the coming months. This anticipation of an easing cycle could potentially boost the gold price, making it a more attractive option for foreign buyers. Additionally, strong central bank purchases and demand from Asian markets continue to support the precious metal in the near term. Political tensions in the Middle East could also increase safe-haven flows and benefit the gold price. Investors will be closely watching Fed Bank of Minneapolis President Neel Kashkari’s speech later on Tuesday, as any hawkish tone from the Fed officials could support the USD and weigh on USD-denominated gold.
Despite the elevated inflationary environment and uncertainty surrounding the timing of potential rate cuts by the Fed, the gold price has continued to perform well this year, up by about 12%. Richmond Fed President Thomas Barkin believes that current interest rates should be sufficient to bring down inflation to the target level of 2%, with the strong job market providing officials with confidence in this outcome. New York Fed President John Williams has indicated that rate cuts are likely in the future, citing moderating job growth and a comprehensive assessment of economic data. Markets have already started pricing in rate cuts from the Fed, with the first cut expected in September or November.
Technical analysis suggests that the gold price is poised to consolidate further in the near term. The yellow metal remains above the key 100-day Exponential Moving Average on the daily chart, indicating a constructive outlook. Despite being within a descending trend channel since mid-April, the path of least resistance seems to be upwards as the 14-day Relative Strength Index remains in bullish territory. Key levels to watch include potential upside targets at $2,350-$2,355, $2,400, and the all-time high near $2,432. On the downside, support levels are seen at $2,300, $2,275, $2,228, and $2,200.
In the last 7 days, the US Dollar has shown strength against major currencies such as the Pound Sterling, as indicated in the table showing percentage changes. This strength of the USD could continue to impact the gold price and other asset classes moving forward. As inflation measures the rise in the price of goods and services, higher inflation usually results in a stronger currency due to potential interest rate hikes by central banks. However, high inflation can also negatively impact gold prices as it increases the opportunity cost of holding the precious metal compared to interest-bearing assets. On the other hand, lower inflation tends to be positive for gold as it brings interest rates down, making gold a more attractive investment choice in such environments.
In conclusion, the gold price remains sensitive to various factors such as USD strength, inflation levels, central bank policies, and geopolitical tensions. While the anticipation of potential rate cuts by the Fed could support the gold price, ongoing uncertainties in the global economy and financial markets may continue to drive volatility in the precious metal. Investors will closely monitor economic data releases, central bank statements, and geopolitical developments for further cues on the direction of the gold price in the coming months. As always, it is important for traders and investors to stay informed and adapt their strategies accordingly in response to changing market conditions.
