Gold (XAU/USD) climbs to the highest level since October 21 during the Asian session on Monday and seems poised to build on last week’s strong move up amid a supportive fundamental backdrop. Traders ramped up their bets for another interest rate cut by the US central bank in reaction to the recent dovish remarks by several Federal Reserve (Fed) officials. The dovish outlook, in turn, drags the US Dollar (USD) to a nearly two-week low and continues to underpin the non-yielding yellow metal.
Apart from this, the cautious market mood and geopolitical risks stemming from the escalating Russia-Ukraine war turn out to be other factors that benefit the safe-haven Gold price. The uptick, however, lacks follow-through as the XAU/USD bulls seem reluctant and opt to wait for this week’s key US macro releases, starting with the ISM Manufacturing PMI later today, before placing fresh bets. This, in turn, warrants some caution before positioning for any further intraday appreciating move.
Daily Digest Market Movers: Gold benefits from rising Fed rate cut bets, safe-haven demand
- The recent dovish remarks from US Federal Reserve Governor Christopher Waller and New York Fed President John Williams strengthened the case for another interest rate cut this month. Moreover, a mixed set of US economic data released last week did little to dent market expectations and continues to underpin the non-yielding Gold.
- White House economic adviser Kevin Hassett said on Sunday that he would be happy to serve as the next chairman of the US central bank if chosen by President Donald Trump. Hassett is expected to enact Trump’s calls for sharply lower interest rates, pushing the precious metal to a six-week high during the Asian session on Monday.
- Dovish Fed expectations continue to exert downward pressure on the US Dollar, which drops to a nearly two-week low and turns out to be another factor acting as a tailwind for the precious metal. Apart from this, a generally softer tone around the Asian equity markets is seen, offering additional support to the safe-haven commodity.
- A private survey released on Monday showed that business activity in China’s manufacturing sector unexpectedly slipped back into contraction territory. This follows Sunday’s release of the official PMI, which shrank for an eighth straight month, and weighs on investors’ sentiment amid persistent geopolitical uncertainties.
- Meanwhile, Ukrainian naval drones hit two oil tankers from Russia’s so-called shadow fleet as they travelled through the Black Sea. Furthermore, US Secretary of State Marco Rubio said that the latest talks with Ukrainian officials were very productive, though he noted that more work remains to be done towards ending the war.
- Traders now look forward to the release of the US ISM Manufacturing PMI for some impetus later during the North American session. Apart from this, this week’s important US macro releases, scheduled at the beginning of a new month, will drive the USD demand and influence the near-term trajectory for the XAU/USD pair.
Gold technical setup backs the case for further gains towards reclaiming the $4,300 mark
From a technical perspective, a sustained strength and acceptance above the $4,250 area will be seen as a fresh trigger for bulls and pave the way for a further near-term appreciating move for the Gold price. Given that oscillators on the daily chart have been gaining positive traction, the commodity might then surpass an intermediate hurdle near the $4,277-4,278 region and aim to reclaim the $4,300 mark.
On the flip side, the Asian session low, around the $4,200 neighborhood, now seems to protect the immediate downside. Any further weakness could be seen as a buying opportunity and find decent support near the $4,155-4,153 region. A convincing break below might prompt some technical selling and make the Gold price vulnerable to accelerate the fall towards the $4,100 mark en route to the $4,073 confluence. The latter comprises the 200-period Exponential Moving Average (EMA) on the 4-hour chart and an ascending trend-line extending from late October.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. 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 the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.