Gold price (XAU/USD) traded in the negative territory on Thursday, driven by a stronger US Dollar (USD) and higher US yields. The expectation of a rate cut by the Federal Reserve in September has diminished, adding selling pressure to the precious metal. Investors are closely watching the second estimate of the US Gross Domestic Product (GDP) for Q1 2024, as a stronger-than-expected reading could further boost the USD and weigh on the USD-denominated gold price. Despite this, ongoing geopolitical tensions in the Middle East and rising demand from central banks may support gold as a safe-haven asset in the near term.
In recent developments, the Israeli military established operational control over the Philadelphi Corridor along the Gaza-Egypt border, while global physically-backed gold Exchange-Traded Funds (ETFs) saw a net outflow last week. The Federal Reserve’s Atlanta President Bostic mentioned that price gains are significant, but less inflation breadth might increase confidence in a rate cut. The US economy continued to expand, though outlooks were more pessimistic amid rising uncertainty and greater downside risks. Meanwhile, markets are pricing in a 50% chance of the Fed holding interest rates in September.
In terms of technical analysis, the gold price remains bullish in the long term, trading above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) indicates a neutral level, suggesting potential consolidation. Extended gains above certain levels could lead to new highs, while support levels are identified for possible downside movement. Additionally, the US Dollar (USD) showed strength against major currencies, with the New Zealand Dollar being the weakest.
Gold has historically been a store of value and medium of exchange, serving as a safe-haven asset during turbulent times. Central banks hold significant Gold reserves to support their currencies and diversify their assets. In 2022, central banks added a record amount of Gold to their reserves. Gold has an inverse correlation with the US Dollar and US Treasuries, making it an attractive investment in times of currency depreciation. External factors such as geopolitical instability and changes in interest rates also influence Gold prices. Gold is primarily priced in US Dollars, with a strong Dollar keeping prices controlled and a weaker Dollar pushing prices up.
In conclusion, the gold price experienced a downtick in Thursday’s Asian session due to a stronger USD and higher US yields. However, geopolitical tensions and central bank demand may continue to support gold as a safe-haven asset. Investors are closely monitoring US GDP data and Fed rate cut expectations for further direction. Technical analysis suggests a bullish long-term trend for gold, with key support and resistance levels identified. Central banks’ significant Gold reserves and Gold’s inverse correlation with the US Dollar underscore its importance as a hedge against inflation and currency depreciation. External factors such as geopolitical instability and changes in interest rates can also impact Gold prices in the market.
