Home Forex Gold Price Oscillates Around 50-Day SMA, Looks Vulnerable Amid Doubts About Fed Rate Cut Soon

Gold Price Oscillates Around 50-Day SMA, Looks Vulnerable Amid Doubts About Fed Rate Cut Soon

by SuperiorInvest


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  • The gold price is trying to capitalize on the previous day’s recovery from a more than one-month low.
  • Reduced bets on a March Fed rate cut put upward pressure on U.S. bond yields and cap gains.
  • Escalating geopolitical tensions underlie XAU/USD’s safe haven and should limit its downside.

Gold price (XAU/USD) oscillates in a narrow trading range during the Asian session on Friday and remains within reach of more than a monthly low, around the psychological level of $2,000, which was reached earlier this week. Geopolitical tensions in the Middle East further escalated after Pakistan launched retaliatory airstrikes inside Iran on Thursday. This comes on top of clashes between the US and the Houthis in the Red Sea, which, along with lingering fears of continued economic weakness in China, are acting as a tailwind for the safe-haven precious metal.

Meantime, American dollar (USD) is extending its consolidating sideways price movement for the third day in a row and is proving to be another factor supporting the price of gold. This means that reduced bets on an early interest rate cut by the Federal Reserve System (Fed) continue to support higher US Treasury yields, which could continue to support the USD and limit gains for the unyielding yellow metal. This in turn calls for some caution for aggressive bull traders and before placing any meaningful appreciation move for XAU/USD.

Daily Digest Market Movers: Gold price struggles to attract buyers amid mixed fundamentals

  • US-led forces continue to clash with the Iran-backed Houthi group in the Red Sea and appear to be benefiting from a safe gold price amid muted price action around the US dollar.
  • Houthi rebels in Yemen fired two anti-ship ballistic missiles at a Greek-owned and operated tanker on Thursday, prompting the US to launch a fifth strike against Houthi targets in response.
  • Pakistan launched a series of military strikes against terrorist hideouts in Iran’s Sistan-Baluchistan province, while the latter launched a planned air defense exercise from its Chabahar port near Pakistan.
  • The USD is consolidating below its highest level since Dec. 13 touched earlier this week, even as reduced bets on a March rate cut by the Federal Reserve continue to act as a tailwind.
  • Incoming resilient US macro data released this week suggested the economy is in good shape, giving the central bank room to keep interest rates higher for longer.
  • Against the backdrop of upbeat US retail sales figures on Wednesday, data released on Thursday showed initial jobless claims fell to the lowest level since September 2022.
  • Markets reacted quickly to the strong labor market report and are now pricing in just over a 50% chance of a rate cut at the March FOMC meeting, down from 75% a week ago.
  • The yield on the benchmark US 10-year Treasury note hit its highest level since mid-December, which favors USD bulls and should limit gains in the unyielding yellow metal.
  • Traders are now looking for near-term opportunities in US macro data – advance expectations for consumer sentiment and inflation in Michigan, along with existing home sales.

Technical analysis: Gold bears may wait for a break below $2,000 before placing new bets

Technically, the lack of follow-up buying above the 50-day simple moving average (SMA) suggests that the selling trend is far from over. Additionally, the oscillators on the daily chart have just started to gain negative traction, suggesting that the path of least resistance for the gold price is to the downside. Thus, any further move up could still be seen as an opportunity for bearish traders and it is in danger of disappearing fairly quickly near the $2,040-$2,042 static resistance. However, some subsequent buying could trigger short covering to the upside and lift XAU/USD towards the $2,077 area on its way to the $2,100 psychological barrier.

On the downside, bearish traders may now wait for a sustained break below $2,000 before placing new bets. The gold price could then accelerate the fall towards the December monthly swing low, around the $1,974-$1,973 region. The one near the 100- and 200-day SMA confluence, around the $1,971-$1,963 area, which, if decisively broken, should pave the way for deeper losses towards the $1,955 intermediate support. XAU/USD could eventually drop to the November swing low, around the $1,932-1,931 region.

Today’s price in US dollars

The table below shows today’s percentage change in the US dollar (USD) against the major currencies listed. The US dollar was the weakest against the euro.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar -0.09% -0.02% 0.00% -0.02% 0.07% 0.25% 0.00%
euros 0.09% 0.07% 0.08% 0.05% 0.16% 0.32% 0.09%
GBP 0.02% -0.06% 0.02% -0.01% 0.08% 0.28% 0.03%
CAD 0.00% -0.09% -0.02% -0.05% 0.07% 0.26% 0.00%
AUD 0.04% -0.03% 0.03% 0.04% 0.10% 0.29% 0.04%
JPY -0.07% -0.15% -0.08% -0.08% -0.10% 0.19% -0.07%
NZD -0.27% -0.36% -0.27% -0.28% -0.31% -0.19% -0.27%
CHF 0.00% -0.06% -0.02% 0.00% -0.07% 0.09% 0.23%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Frequently Asked Questions About Gold

Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, the precious metal, apart from its luster and use for jewelry, is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it does not rely on any particular issuer or government.

Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US dollar and US Treasuries, which are major reserves and safe-haven assets. When the dollar weakens, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets. Stock market rallies tend to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.

The price can fluctuate due to a wide variety of factors. Geopolitical instability or fears of a deep recession can quickly escalate the price of gold due to its safe-haven status. As a lower-yielding asset, gold tends to rise with lower interest rates, while the higher cost of money typically weighs on the yellow metal. Still, most moves depend on how the US dollar (USD) behaves when the asset is priced in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices up.

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