Gold edges higher at start of eventful week
- Gold trades just below $3,000 at the start of this week after posting a fresh all-time high on Friday.
- Traders brace for a very eventful week with geopolitics and the Federal Reserve decision.
- Gold could hit $3,020 in the near term, with UBS joining BNP in its projections for $3,200.
Gold’s price (XAU/USD) edges slightly higher and trades around $2,995 at the time of writing on Monday following Friday’s take-profit-led correction after hitting a fresh all-time high of $3,005. Traders are bracing for a rather eventful week with the German Bundestag set to vote on the defense spending plan, which would boost the European industry by €1 trillion, on Tuesday. On that same day, United States (US) President Donald Trump is scheduled to meet Russian President Vladimir Putin on a possible peace deal for Ukraine.
As if that is not enough, the US Federal Reserve (Fed) and its Federal Open Market Committee (FOMC) convene on Tuesday and Wednesday before issuing its latest monetary policy decision. Traders will be eager to see how every FOMC member will vote and pencil in forward guidance on the Dot Plot (Philips) curve. Expectations are for no change in the monetary policy, while expectations for a rate cut in May or June constantly increase and decrease day over day.
Daily digest market movers: Looking forward
- President Trump said he will speak with Russian President Vladimir Putin on Tuesday as the US presses for an end to fighting in Ukraine and European nations rush to bolster their support for Kyiv, Bloomberg reports. Trump confirmed that the discussion will be about territory and dividing up certain assets, and there is "a very good chance" for a deal.
- UBS Group AG became the latest bank to raise its price outlook for Gold on increasing chances of a protracted global trade war, a scenario analysts expect will continue to drive investors to scoop up more of the precious metal haven asset. UBS sees the same level as BNP, with Gold trading at $3,200 in the second quarter.
- The CME Fedwatch Tool sees a 99.0% chance for no interest rate changes in the upcoming Fed meeting on Wednesday. The chances of a rate cut at the May 7 meeting currently stand at 27.5%.
Technical Analysis: $3,000 to be reclaimed
The $3,000 mark is now the main beacon going forward and needs to hold ground at one point. Seeing the steep surge to a fresh all-time high last week, it is still quite good for the precious metal to fall below the level briefly and allow traders to reenter at a lower price. Once the $3,000 level starts to hold and does not allow any excursion below it, traders can gear up for $3,100 and $3,200 in a couple of weeks or months.
The new all-time high at $3,004 reached on Friday is the first level to beat once $3,000 is reclaimed again. That mentioned psychologically important $3,000 level faces a double challenge on Monday, with the R1 resistance coming in at $2,999 to reinforce this area. Intraday traders might use this zone to scalp some profit, as the R2 resistance at $3,015 looks a bit too far for the day.
On the downside, the daily Pivot Point at $2,989 has provided ample support to avoid slippage to the downside earlier in the day. In case Gold reverses below that level, look for the S1 support at $2,973 and the S2 support at $2,962 on the downside.
XAU/USD: Daily Chart
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.
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