Gold price (XAU/USD) is currently trading lower on Friday due to a stronger US Dollar (USD) demand. The diminishing expectations of a rate cut in September from the US Federal Reserve (Fed) are putting selling pressure on the precious metal. However, amid rising geopolitical tensions in the Middle East, safe-haven flows might support the gold price. Investors are closely watching the Fed’s upcoming Waller speech, as well as the US Durable Goods Order and Michigan Consumer Sentiment Index report.
The US Initial Jobless Claims fell by 8K to 215K, coming in lower than expectations and the previous week’s reading. The flash US S&P Global Manufacturing PMI rose to 50.9 in May, while the Services PMI climbed to 54.8. Both figures beat estimates, with the US S&P Global Composite PMI jumping to 54.4. Atlanta Fed President Raphael Bostic noted upward inflation pressure, suggesting the Fed might need to exercise patience. China’s private sector imported 543 tonnes of gold in Q1 2024, with the People’s Bank of China adding 189 tonnes to its reserves. Gold imports to India are expected to decline by about a fifth in 2024 due to high prices.
From a technical analysis standpoint, the bullish outlook for gold remains intact despite the current weaker performance. The precious metal is holding above the key 100-period Exponential Moving Average on the daily chart. However, a bearish divergence has formed, indicating slowing momentum and the potential for a correction or consolidation. Immediate resistance is at the upper boundary of the Bollinger Band, with a break above potentially leading to a climb towards all-time highs. On the downside, initial support is at the May 13 low, with further downside levels at the lower Bollinger Band and the 100-period EMA.
Gold has historically been a key asset for stores of value and a medium of exchange. It is often seen as a safe-haven investment during turbulent times, a hedge against inflation, and depreciating currencies. Central banks are the largest holders of gold, using it to diversify reserves and improve the perceived strength of their economies. Gold has an inverse correlation with the US Dollar and US Treasuries, making it a popular asset for diversification in times of economic uncertainty. Factors such as geopolitical instability, interest rates, and the strength of the US Dollar can all influence the price of gold. Closely monitoring these factors can help investors make informed decisions about their gold investments.
