- Gold down 0.4% as stronger USD, lower Treasury yields follow weak US jobs data.
- Missed US April Nonfarm Payrolls heighten focus on potential Fed rate adjustments in September.
- Market awaits Fed officials’ comments and key data, including jobless claims and consumer sentiment indices.
Gold price slipped during the North American session, dropping around 0.4% amid a strong US Dollar and falling US Treasury bond yields. A scarce economic docket in the United States (US) would keep investors focused on Federal Reserve officials during the week after last Friday’s US employment report.
The XAU/USD trades at $2,315 after hitting a daily high of $2,329. The financial markets narrative is focused on when the Fed will begin to ease policy following the release of softer economic data. The US Department of Labor revealed that April’s Nonfarm Payrolls came in at 175K, missing estimates and trailing March’s upward revised 315K figure.
Following the data release, the CME FedWatch Tool shows odds for a quarter of a percentage point cut in September increased from 55% before the report to 85%.
Nevertheless, recent hawkish comments by Minneapolis Fed President Neel Kashkari, who said that the Fed might stand put on interest rates and opened the door to raising the federal funds rate if inflation doesn’t resume its downtrend, bolstered the Greenback.
The economic docket for the current week will examine further Fed officials crossing the wires, along with Initial Jobless Claims for the week ending May 4 and the preliminary release of the University of Michigan Consumer Sentiment.
Daily digest market movers: Gold price rises toward $2,320 as US yields fall
- Gold prices fell amid lower US Treasury yields and a strong US Dollar. The US 10-year Treasury note is yielding 4.457%, down three basis points (bps) from its opening level. The US Dollar Index (DXY), which tracks the Greenback’s performance against six other currencies, rallies 0.52% to 105.42.
- Last Friday, April’s US NFP missed estimates and trailed March’s figures. That alongside the Institute for Supply Management (ISM) PMIs in the manufacturing and services sectors entering contractionary territory might undermine the US Dollar, a tailwind for the golden metal.
- Gold advancing more than 12% so far in 2024 is courtesy of expectations that major central banks would begin to reduce rates. Renewed fears that the Middle East conflict could resume between Israel and Hamas can sponsor a leg up in XAU/USD prices.
- According to Reuters, the People’s Bank of China (PBoC) continued to accumulate Gold for the 18th straight month, adding 60,000 troy ounces to its reserves amid higher prices.
- After the data release, Fed rate cut probabilities increased, with traders expecting 36 basis points of rate cuts toward the end of the year.
Technical analysis: Gold price slumps below $2,320
Gold’s uptrend remains in place despite retreating on Tuesday. According to the Relative Strength Index (RSI), momentum favors the buyers as the RSI stands in bullish territory. Therefore, buyers could capitalize on “buying the dip.”
If XAU/USD slumps past the $2,300 mark, that could put pressure on the bulls, as the latest cycle low is seen at the May 3 low of $2,233. Once cleared, that could open the door to test the 50-day Simple Moving Average (SMA) at $2,249.
On the other hand, if buyers lift the golden metal price, the next resistance would be the April 26 high, the latest cycle high at $2,352. Once cleared, the next stop would be the $2,400 threshold, followed by the April 19 high at $2,417 and the all-time high of $2,431.
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 a 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.
**Central Banks’ Gold Reserves**
Central banks play a crucial role in supporting their currencies during turbulent times by diversifying their reserves and purchasing gold to enhance the economy’s perceived strength. In 2022, central banks added a significant amount of gold to their reserves, with emerging economies like China, India, and Turkey rapidly increasing their gold holdings. This strategic move not only boosts trust in a country’s solvency but also reinforces the currency’s stability.
**Geopolitical Influences on Gold Prices**
Apart from economic indicators, geopolitical instability and fears of recessions can significantly impact gold prices. As a safe-haven asset, gold tends to surge in value during times of turmoil, making it an attractive investment choice for investors seeking stability. Additionally, tensions in regions like the Middle East can further propel gold prices upwards due to increased uncertainty and risk factors.
**Gold and Inflation Hedge**
Gold is widely regarded as a hedge against inflation and depreciating currencies. Its intrinsic value as a store of wealth and medium of exchange makes it a valuable asset during times of rising inflationary pressures. Moreover, as a tangible asset with limited supply, gold retains its value over time and serves as a safeguard against the erosion of purchasing power caused by inflation.
**Market Dynamics and Gold Performance**
Gold prices have exhibited a strong correlation with major economic factors such as US Treasury yields and the US Dollar. The inverse relationship between gold and these assets highlights the metal’s role as a diversification tool in investment portfolios. When the US Dollar weakens, gold prices tend to rise, providing investors with a counterbalance to currency fluctuations and market volatility.
