Gold price trades with mild positive bias, seems poised to climb further
- Gold price extends its consolidative price move in the weekly trading range.
- The Fed’s hawkish pause acts as a headwind for the non-yielding commodity.
- Sliding US bond yields keep the USD bulls on the defensive and lend support.
Gold price (XAU/USD) ticks higher during the Asian session on Thursday, though it lacks follow-through and remains confined in the weekly range amid mixed fundamental cues. The Federal Reserve's (Fed) hawkish pause at the end of a two-day policy meeting on Wednesday acts as a tailwind for the US Dollar (USD) and caps the non-yielding yellow metal. That said, a fresh leg down in the US Treasury bond yields, along with concerns about US President Donald Trump's tariff plans, continue to offer support to the safe-haven commodity.
Furthermore, Trump's demand for lower interest rates and signs of abating inflation in the US support the prospect for further policy easing by the Fed. This, in turn, suggests that the path of least resistance for the Gold price remains to the upside. Hence, any corrective pullback might still be seen as a buying opportunity and remain limited. The market focus now shifts to the European Central Bank (ECB) policy meeting, which might infuse some volatility in the financial markets and produce short-term trading opportunities around the XAU/USD.
Gold price continues to draw support from trade war fears, sliding US bond yields
- The Federal Reserve held interest rates steady on Wednesday and signaled that there would be no rush to lower borrowing costs until inflation and jobs data made it appropriate.
- In the post-meeting press conference, Fed Chair Jerome Powell said that politics would not affect the central bank's interest-rate calls and downplayed expectations for future rate cuts.
- Powell's remarks reaffirmed the notion that rates will remain higher for longer amid caution over US President Donald Trump's protectionist policies, which could reignite inflation.
- The yield on the benchmark 10-year US government bond struggles to build on the post-FOMC bounce from over a one-month low, capping the US Dollar and supporting the Gold price.
- Investors remain concerned about the potential economic fallout from Trump's trade tariffs and protectionist policies, which further underpin the safe-haven precious metal.
- The highly-anticipated European Central Bank (ECB) monetary policy decision this Thursday could infuse some volatility in the markets and drive demand for the XAU/USD.
- The focus will then shift to the release of the closely-watched US Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred inflation gauge – on Friday.
Gold price bulls await a move beyond the $2,772-2,773 immediate hurdle
From a technical perspective, the recent breakout through the $2,720-2,725 horizontal barrier and positive oscillators on the daily chart validate the near-term positive outlook for the Gold price. That said, it will still be prudent to wait for a subsequent strength beyond the $2,772-2,773 immediate hurdle before positioning for a move towards the $2,786 area, or the highest level since October 2024 touched last Friday. The momentum could extend further towards the all-time peak, near the $2,790 zone. Some follow-through buying, leading to a move beyond the $2,800 mark, will be seen as a fresh trigger for bulls and pave the way for an extension of a well-established uptrend witnessed over the past month or so.
On the flip side, weakness below the overnight swing low, around the $2,745-2,744 area could be seen as a buying opportunity but limited near the $2,730 region, or the weekly trough touched on Monday. This is followed by the $2,725-2,750 resistance-turned-support, below which the Gold price could accelerate the fall towards the $2,707-2,705 area en route to the $2,684 support zone.
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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