Gold prices weakened on Tuesday due to a rise in the US Dollar, which reduced the cost of Gold priced in USD. The USD had previously declined following weak US jobs data, but a statement from Fed policymakers indicating a reluctance to cut interest rates provided support for the Greenback. The declining Gold price (XAU/USD) traded down by roughly a third of a percent in the $2,310s on Tuesday.
Despite the US Nonfarm Payrolls data from the previous week suggesting a weakening labor market and potential rate cuts by the Federal Reserve, Fed members continued to voice their hesitation in lowering borrowing costs too quickly. Richmond Fed President Thomas Barkin mentioned that the current interest rate level should bring inflation down to the Fed’s target, albeit gradually. New York Fed President John Williams also indicated that there would likely be rate cuts in the future, but emphasized the importance of considering all the data before making any decisions.
Gold price met resistance at the ceiling of a mini-range at around $2,326, and retreated to find support at the 50 Simple Moving Average (SMA) on the 4-hour chart at $2,317. There is potential for further pullback to the base of the range at around $2,280, with support expected at the 200 SMA and prior lows around $2,300. A breakout above the range could signal a move towards $2,353 as a conservative target, possibly even reaching $2,370 in a bullish scenario.
Gold price is potentially in the middle of unfolding a bearish Measured Move price pattern that began on April 19. The pattern consists of three waves labeled A, B, and C, with C expected to reach the length of A or a Fibonacci 0.681 of A. While price has fallen to the conservative estimate of wave C at $2,286, a further move to $2,245 could be possible if there is a decisive break below the range and the May 3 low at $2,277. The overall trend for Gold price is up on both the daily and weekly charts.
Gold has historically played a critical role in human history as a store of value and medium of exchange, and is now seen as a safe-haven asset and a hedge against inflation and depreciating currencies. Central banks are among the biggest holders of Gold, using it to support their currencies during turbulent times. Central banks added a significant amount of Gold to their reserves in 2022, with countries like China, India, and Turkey rapidly increasing their Gold reserves.
The price of Gold is influenced by various factors, including its inverse correlation with the US Dollar and US Treasuries, as well as geopolitical instability, fears of recession, and interest rates. A strong Dollar tends to keep Gold prices under control, while a weaker Dollar can push prices up, as the asset is priced in USD. Gold serves as a diversification asset during turbulent times, with its value often rising in response to market uncertainties.
