Gold prices rose on Wednesday as the US Dollar weakened, driven by increased gold demand and geopolitical tensions. The rise in gold demand from robust over-the-counter market investments, consistent central bank purchases, and safe-haven flows amid Middle East geopolitical risks acted as a tailwind for XAU/USD. However, Federal Reserve officials’ hawkish remarks could potentially lower the price of gold in the near term. Later in the day, the US Consumer Price Index (CPI) for April is set to be released, providing insights into the Fed’s monetary policy path. Additionally, Retail Sales for April will be published, offering a glimpse into consumer spending trends. Higher-than-expected inflation data may lead to a more aggressive Fed stance, boosting the US Dollar and exerting selling pressure on USD-denominated gold.
In April, the US Producer Price Index (PPI) rose 2.2% year-on-year, with the Core PPI jumping 2.4% year-on-year. Fed Chair Jerome Powell’s comments on inflation falling slower than expected and the PPI data suggesting the need to keep rates higher for longer. Kansas City Fed President Jeffrey Schmid noted that inflation remains too high. The annual headline Consumer Price Index (CPI) inflation is expected to ease to 3.4% in April, while Core CPI inflation is estimated to drop to 3.6%. The US Retail Sales projection for April is a decline to 0.4% month-on-month. Financial markets are pricing in a 65% chance of a rate cut by the Fed in September 2024. Global gold demand rose by 3% in the first quarter of 2024, the strongest since 2016, according to the World Gold Council’s report for Q1 2024.
Technical analysis shows a positive outlook for gold prices, with XAU/USD trading above the key 100-period Exponential Moving Average (EMA) and the RSI in the bullish zone. Any follow-through buying above $2,378 could pave the way for a rally to the $2,400 psychological barrier. Key support levels for gold are around $2,325-$2,330, with potential downside targets at $2,300 and $2,281. The US Dollar was the weakest against the Australian Dollar, according to a percentage change of major currencies table.
Gold has historically been seen as a store of value and medium of exchange, as well as a safe-haven asset during turbulent times. Central banks are significant gold holders, with purchases in 2022 reaching record highs. Gold has an inverse correlation with the US Dollar and US Treasuries, making it an attractive asset for diversification in turbulent times. Various factors influence gold prices, including geopolitical instability, economic recession fears, interest rates, and the US Dollar’s performance. Ultimately, gold prices are heavily influenced by the strength or weakness of the US Dollar as the asset is priced in dollars.
