- Gold price gains some positive traction during the Asian session on Thursday amid a softer risk tone.
- The US Dollar builds on the overnight bounce from a two-month low and should cap the upside for XAU/USD.
- Bets that the Federal Reserve is done raising interest rates could act as a headwind for the Greenback.
Gold price (XAU/USD) attracts some dip-buying during the Asian session on Thursday and for now, seems to have stalled its retracement slide from over a one-week high, around the $1,975-1.976 area touched the previous day. A softer tone around the US equity futures is seen as a key factor acting as a tailwind for the safe-haven precious metal. Apart from this, growing acceptance that the Federal Reserve (Fed) will not hike interest rates further offers additional support to the non-yielding yellow metal.
That said, a further US Dollar (USD) recovery, from its lowest level since September 1 touched in the aftermath of softer US consumer inflation figures, should keep a lid on any further gains for the Gold price. The US Retail Sales fell less than expected in October, which, along with an upward revision of the previous month’s already stronger reading, led to a goodish rebound in the US Treasury bond yields. This continues to lend some support to the Greenback, warranting caution before placing bullish bets around the XAU/USD.
Daily Digest Market Movers: Gold price regains positive traction, though the upside potential seems limited
- The US Producer Price Index (PPI) registered its largest decline since April 2020 and fell 0.5% in October. Moreover, data for September was also revised down to show the PPI increasing by 0.4% instead of 0.5%.
- This comes on top of the US CPI report on Tuesday, which showed that consumer inflation was cooling faster than anticipated, and strengthened expectations that the Federal Reserve is done hiking interest rates.
- The headline US Retail Sales fell for the first time in seven months in October, though the decline was less than expected and was accompanied by an upward revision of the September data to show strong gains.
- San Francisco Fed President Mary Daly, in an interview with Financial Times on Wednesday, underscored the uncertainty about whether the central bank has done enough to push consumer price back down to its 2% target.
- This clouded the outlook for when the Fed will begin cutting interest rates, which is seen offering some support to the US Dollar and should contribute to keeping a lid on any meaningful appreciating move for the Gold price.
- Market participants now look forward to the US economic docket, featuring the release of Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Industrial Production figures for a fresh impetus.
Technical Analysis: Gold price might now face resistance near $1,975-1,976 or over a one-week top set on Wednesday
From a technical perspective, the one-week high, around the $1,975-1,976 area touched on Wednesday now seems to act as an immediate hurdle. A sustained strength beyond has the potential to lift the Gold price further towards the $1,991-1,992 hurdle en route to the $2,000 psychological mark. The momentum could get extended towards a multi-month peak, around the $2,009-2,010 region, which if cleared decisively will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.
On the flip side, the $1,955-1,950 area is likely to protect the immediate downside ahead of the 200-day Simple Moving Average (SMA), currently near the $1,935 region. This is closely followed by the 100- and the 50-day SMAs confluence, around the $1,928-1,925 zone, below which the Gold price could turn vulnerable and accelerate the fall towards the $1,900 round figure.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.