Gold price retreats from the vicinity of record high; FOMC minutes awaited
- Gold price drifts lower as bulls opt to lighten their bets ahead of the FOMC minutes release.
- Concerns about Trump’s tariff plans and trade war fears lend support to the commodity.
- Fed rate cut bets undermine the USD and further act as a tailwind for the XAU/USD pair.
Gold price (XAU/USD) attracts some sellers during the Asian session on Wednesday and erodes a part of the previous day's strong move back up closer to the record high. The downtick could be attributed to some profit-taking amid a generally positive risk tone, which tends to undermine demand for the safe-haven bullion. That said, the uncertainty surrounding US President Donald Trump's tariff plans might continue to act as a tailwind for the precious metal.
Meanwhile, expectations that the Federal Reserve (Fed) might cut interest rates further this year, bolstered by a surprise drop in US Retail Sales, fail to assist the US Dollar (USD) to capitalize on Tuesday's modest gains. This should contribute to limiting any meaningful slide for the Gold price. Traders might opt to wait for the FOMC meeting minutes for cues about the rate-cut path before placing directional bets around the non-yielding yellow metal.
Gold price bulls turn cautious amid a positive risk tone, ahead of FOMC meeting minutes
- The optimism over a delay in the implementation of US President Donald Trump's reciprocal tariffs and talks aimed at ending the protracted Russia-Ukraine war prompted some profit-taking around the Gold price on Wednesday.
- Investors remain worried about a potential escalation in global trade tensions on the back of Trump's protectionist policies. This, along with bets for further policy easing by the Federal Reserve, supports the safe-haven bullion.
- The disappointing release of US Retail Sales figures on Friday, along with mixed signals on inflation, suggests that the US central bank could possibly cut interest rates at the September or October monetary policy meeting.
- In fact, the Fed Funds Futures see the possibility of a 40 basis point rate cut by the end of this year. This keeps a lid on the US Dollar (USD) recovery from a two-month low and should further underpin the XAU/USD.
- San Francisco Fed President Mary Daly said on Tuesday that the US central bank should keep short-term borrowing costs where they are until the progress toward achieving the 2% inflation target is more visible.
- Hence, the market focus will remain on the release of the Fed's January meeting minutes, which will be looked upon for clues about the central bank's interest rate trajectory and influence on the non-yielding yellow metal.
Gold price technical setup supports prospects for the emergence of dip-buying below $2,925
From a technical perspective, the range-bound price action might still be categorized as a bullish consolidation phase against the backdrop of the recent strong move up to the all-time peak. That said, the daily Relative Strength Index (RSI) remains close to the overbought territory and supports prospects for an extension of the consolidative price move. Nevertheless, the setup remains tilted in favor of bulls and suggests that the path of least resistance for the XAU/USD remains to the upside.
Meanwhile, weakness below the $2,925 area is likely to find some support near the $2,900 mark ahead of the $2,878-2,876 zone or the lower boundary of the short-term trading range. A convincing break below the latter could drag the Gold price to the $2,860-2,855 area en route to the $2,834 region. Failure to defend the said support levels might prompt some technical selling and drag the XAU/USD towards the $2,815 region en route to the $2,800 mark and the $2,785-2,784 area.
On the flip side, the $2,940-2,942 region, or the record high touched earlier this month, might continue to act as an immediate strong barrier. Some follow-through buying will be seen as a fresh trigger for bullish traders and set the stage for an extension of a well-established uptrend witnessed over the past two months or so.
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.
추천 기사
