Gold price recovered despite renewed USD demand on Wednesday, as investors hesitated to bet on potential Fed interest rate cuts in 2024. The Asian trading hours saw some buyers attracted to the gold price (XAU/USD), driven by safe-haven demand due to geopolitical tensions, uncertainty, and ongoing central bank purchases. However, hawkish remarks from Fed officials may dampen hopes for rate cuts, despite weaker-than-expected US employment reports in April. The Fed’s Philip Jefferson, Susan Collins, and Lisa Cook are scheduled to speak, with their comments likely impacting the USD-denominated gold. Traders will also keep an eye on the University of Michigan consumer sentiment reading on Friday.
Minneapolis Fed Bank President Neel Kashkari mentioned that it may be too early to declare that inflation has stalled, hinting at possible interest rate cuts this year if price pressures ease. Richmond Fed President Thomas Barkin stated that the current interest rates are restrictive enough to cool the economy and bring inflation back to the 2% target. Financial markets are currently pricing in nearly 50 basis points of rate cuts from the Fed this year, with a 65.7% chance of a 25 bps rate cut in September. The preliminary University of Michigan Consumer Sentiment Index is expected to drop from 77.2 in April to 76.0 in May. Israeli strikes on Gaza and the People’s Bank of China adding gold to its reserves also impact market sentiment.
Technically, the gold price maintains a constructive stance in the long term, remaining above the key 100-day Exponential Moving Average (EMA) with an upward slope. In the near term, XAU/USD has been stuck in a descending trend channel since mid-April, confirmed by the 14-day Relative Strength Index (RSI) below the 50 midline. $2,300 is the first downside target, followed by $2,260 and $2,228. On the upside, resistance lies at $2,332 and $2,350–$2,355, with further targets at $2,400 and an all-time high near $2,432.
The US Dollar (USD) showed mixed performance against major currencies, with the Swiss Franc being the strongest against the USD. Central banks are major gold holders, using the precious metal as a reserve asset to strengthen their economies during uncertain times. Gold has an inverse correlation with the USD and US Treasuries, serving as a safe-haven asset during turbulent times. Price movements can be influenced by geopolitical instability, recession fears, interest rates, and US Dollar behavior.
In conclusion, despite renewed USD demand, the gold price remains firm amid uncertainties in the market. The ongoing geopolitical tensions, central bank purchases, and upcoming Fed speeches will likely impact the price movement. Traders should closely monitor key levels and events to make informed decisions. Gold continues to hold its value as a safe-haven asset, offering protection against inflation and currency depreciation. Wealth managers and investors may consider diversifying their portfolios with gold to mitigate risks in unpredictable market conditions.
