- Gold price continues losing ground on Thursday, facing downward pressure from multiple converging factors.
- Optimism surrounding US-China trade relations diminishes the appeal of gold as a safe-haven asset, compounded by rising US bond yields.
- Market participants are now keenly awaiting the US PPI data and Federal Reserve Chair Jerome Powell’s upcoming remarks for further market direction.
The Gold price (XAU/USD) is trending downwards for the second consecutive day, marking its third negative session in the last four, and has declined to a more than one-month low, breaching the $3,150 threshold during Thursday’s Asian trading session. A significant factor contributing to this decline is the increasing optimism stemming from the potential de-escalation of trade tensions between the United States and China – the world’s two largest economies – which has historically supported risk assets. This development reduces the demand for safe-haven assets like gold. Furthermore, the 90-day trade truce between the US and China has alleviated concerns regarding a potential recession in the United States, leading investors to scale back their expectations for aggressive policy easing by the Federal Reserve (Fed). This recalibration of expectations is bolstering US Treasury bond yields, further diminishing the attractiveness of the non-yielding precious metal.
Concurrently, the US Dollar (USD) is struggling to fully capitalize on the previous day’s modest rebound from its weekly low, despite the aforementioned supportive fundamental backdrop. This muted Dollar performance, however, provides only marginal support to the Gold price. Even a slight deterioration in global risk sentiment, evidenced by a generally cautious tone in equity markets, is failing to attract substantial buying interest in the precious metal. Adding to the bearish sentiment, the overnight breach and subsequent close below the $3,200 level suggests that the path of least resistance for the XAU/USD pair is skewed to the downside. Investors are now focusing on the upcoming release of the US Producer Price Index (PPI) data, a key inflation indicator, and Fed Chair Jerome Powell’s scheduled appearance. These events are anticipated to provide crucial insights into the future trajectory of interest rate policy, which should offer a fresh catalyst for the commodity. The PPI data will offer insights into inflationary pressures at the wholesale level, while Powell’s comments will be scrutinized for any hints regarding the Fed’s monetary policy stance in the coming months.
Daily Digest Market Movers: Gold price continues to be weighed down by trade optimism and reduced bets for aggressive Fed rate cuts
- The United States and China have reached an agreement to reduce existing tariffs for a period of at least 90 days. Furthermore, US President Donald Trump indicated on Tuesday that he is open to engaging directly with Chinese President Xi Jinping to finalize the details of a comprehensive trade agreement.
- This development has helped to alleviate market anxieties regarding a potential economic slowdown in the world’s largest economy, contributing to the decline of the safe-haven Gold price to a more than one-month low on Thursday, amidst growing expectations of fewer interest rate cuts by the Federal Reserve.
- Market participants are currently pricing in slightly above 50 basis points of interest rate cuts by the Federal Reserve for the remainder of the year, a reduction from the over one percentage point of cuts that were anticipated last month. This shift in expectations has driven the benchmark 10-year US Treasury yield to its highest level in a month.
- Federal Reserve Vice Chair Philip Jefferson cautioned that previously announced tariffs and the prevailing uncertainty surrounding US trade policy could potentially undermine recent progress made in controlling inflation. However, Jefferson also noted that recent inflation data indicates further progress towards the central bank’s 2% target and characterized the current monetary policy stance as appropriately positioned to respond to any emerging developments.
- Adding to this perspective, Chicago Fed President Austan Goolsbee pointed out that certain aspects of the April inflation report may reflect the delayed impact of past economic conditions, suggesting that it will take time for current inflation trends to be fully reflected in the data. Goolsbee emphasized that the current environment warrants a period of observation for the US central bank, allowing policymakers to gather more information and filter out any short-term noise in the data.
- Separately, San Francisco Fed President Mary Daly stated that the US economy and labor market remain robust, while inflation is trending downwards. She suggested that with monetary policy currently positioned as moderately restrictive, but not excessively so, the US central bank can afford to adopt a patient approach to adjusting interest rates, allowing it to respond strategically to evolving economic conditions.
- US Dollar bulls, however, appear hesitant and are opting to await the release of the US Producer Price Index data, scheduled for later in the North American trading session. In addition to the PPI release, Fed Chair Jerome Powell’s upcoming appearance will be closely monitored for any indications regarding the future path of interest rate policy, which is expected to influence the direction of the US Dollar and provide a fresh impetus to the XAU/USD pair.
- Ukrainian President Zelenskyy had previously stated his intention to attend the initial peace talks with Russia, scheduled for this Thursday in Istanbul. However, the Kremlin has since announced that Russian President Vladimir Putin will not be participating in the meeting.
- The Israeli military reported on Wednesday that it had intercepted a missile launched from Yemen towards its territory. Further escalating tensions in the region, a series of intense Israeli airstrikes on Wednesday resulted in the deaths of as many as 80 individuals in Gaza. These geopolitical risks remain a factor in the market, although they have provided limited support to the price of gold.
Gold price breaks below the 61.8% Fibo. level, seems vulnerable to slide further towards the $3,135-3,133 support zone
From a technical analysis standpoint, the overnight breach of the $3,200 level, followed by a subsequent decline below the 61.8% Fibonacci retracement level of the significant upward movement observed in April, could be interpreted as a new catalyst for bearish traders. Furthermore, oscillators on the daily chart have recently begun to exhibit negative momentum, suggesting that the Gold price may extend its decline towards the $3,135-3,133 support zone. Continued selling pressure has the potential to push the XAU/USD pair further down towards the $3,100 level, and a break below this level could expose the next significant support area near the $3,060 region.
Conversely, any attempts to recover above the $3,168-3,170 region (the 61.8% Fibonacci level) may encounter strong resistance ahead of the $3,200 level, or the peak observed during the Asian trading session. Any further upward movement is likely to be viewed as a selling opportunity and may face resistance near the $3,230 area, which represents the 50% retracement level. This level is expected to act as a pivotal point, and a break above it could trigger a fresh wave of short-covering, potentially lifting the Gold price towards the $3,265 intermediate hurdle, en route to the $3,300 round figure (the 38.2% Fibonacci level).
Gold FAQs
Gold has played a central role throughout human history, serving as both a store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, the precious metal is widely regarded as a safe-haven asset, making it a popular investment during periods of economic uncertainty and market volatility. Gold is also commonly viewed as a hedge against inflation and currency depreciation, as its value is not tied to any specific issuer or government.
Central banks are among the largest holders of gold reserves globally. In an effort to bolster their currencies during times of economic turbulence, central banks often diversify their reserves by purchasing gold, which is perceived to enhance the strength and stability of their respective economies and currencies. Substantial gold reserves can instill confidence in a country’s financial solvency. According to data from the World Gold Council, central banks added 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves in 2022. This represents the highest level of annual gold purchases since record-keeping began. Central banks from emerging economies, including China, India, and Turkey, are rapidly increasing their gold holdings.
Gold typically exhibits an inverse correlation with the US Dollar and US Treasuries, both of which are major reserve and safe-haven assets. When the Dollar depreciates in value, gold prices tend to rise, providing investors and central banks with an opportunity to diversify their assets during periods of market volatility. Gold also demonstrates an inverse correlation with risk assets. A rally in the stock market generally exerts downward pressure on gold prices, while sell-offs in riskier markets tend to favor the precious metal.
The price of gold is influenced by a wide array of factors. Geopolitical instability or fears of a significant economic recession can rapidly drive up gold prices due to its safe-haven status. As a yield-less asset, gold tends to appreciate in value when interest rates are low, while higher interest rates typically weigh on the price of the yellow metal. However, most price movements are closely tied to the behavior of the US Dollar (USD), as gold is priced in dollars (XAU/USD). A strong Dollar tends to keep gold prices in check, whereas a weaker Dollar is likely to push gold prices higher.
