Category: Gold News

Gold stands tall above $2,200 mark, closer to record high amid Fed rate cut hopes

  • Gold price gains strong positive traction for the second straight day and refreshes record high.
  • The Fed’s projected three rate cuts this year weigh on the USD and benefit the yellow metal.
  • The prevalent risk-on mood prompts some profit-taking amid slightly overbought conditions.

Gold price (XAU/USD) maintains its strong bid tone through the early part of the European session and currently trades around the $2,210 area, just below a fresh record high touched earlier this Thursday. The US Dollar (USD) selling remains unabated in the wake of the Federal Reserve’s (Fed) projection for three 25 basis points (bps) interest rate cut this year, which, in turn, is seen benefitting the non-yielding yellow metal. Adding to this, geopolitical risks stemming from the protracted Russia-Ukraine war and the ongoing conflicts in the Middle East further seem to underpin the safe-have commodity. 

That said, an uptick in the US Treasury bond yields helps limit any further USD losses. Apart from this, a generally positive risk tone might hold back bullish traders from placing fresh bets around the Gold price amid slightly overbought conditions. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for the XAU/USD is to the upside. Traders now look to the flash PMIs for cues about the global economic health, which along with the US Weekly Jobless Claims and Existing Home Sales data, might provide some impetus to the XAU/USD. 

Daily Digest Market Movers: Gold price stands tall near the record peak as Fed sticks to three rate cuts projection

  • The Federal Reserve on Wednesday maintained its projection of three rate cuts for this year, which weighs on the US Dollar for the second straight day and lifts the Gold price to a fresh all-time peak.
  • Policymakers now see the US economy to grow at 2.1% this year compared to 1.4% expected previously, and the jobless rate is seen at 4% by the end of this year, versus 4.1% anticipated in December.
  • The Personal Consumption Expenditures Price Index, excluding food and energy, is projected to rise at a 2.6% rate by year-end, compared to the 2.4% increase in the previous quarterly economic projections.
  • In the post-meeting press conference, Fed Chair Jerome Powell said that inflation is moving down gradually on a somewhat bumpy road; the recent high inflation readings kept officials on a cautious footing.
  • According to the CME Group’s FedWatch Tool, traders are now pricing in a greater chance, around 75%, that the Fed will begin cutting interest rates at the June policy meeting, up from 59% on Tuesday.
  • This leads to a modest decline in the US Treasury bond yields, dragging the US Dollar to a one-week low during the Asian session on Thursday and lending some support to the precious metal.
  • A slightly overbought condition on the daily chart prompts some profit-taking at higher levels amid a positive tone around the equity markets, which tends to undermine the safe-haven XAU/USD.

Technical Analysis: Gold price seems poised to appreciate further, overbought RSI warrants caution for bulls

From a technical perspective, the overnight strong positive move confirmed a breakout through a bullish flag chart pattern and validated the positive outlook for the Gold price. That said, the Relative Strength Index (RSI) has moved back above the 70 mark, making it prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for any further appreciating move. Nevertheless, the broader setup supports prospects for an extension of the recent well-established strong uptrend witnessed over the past month or so.

Meanwhile, any meaningful corrective decline below the $2,200-2,190 region is likely to attract fresh buyers and remain limited near the $2,160-2,158 horizontal zone. This is followed by the weekly swing low, around the $2,146 area, which, if broken decisively, might prompt some technical selling and drag the Gold price further towards the next relevant support near the $2,128-2,127 zone. The XAU/USD could decline further, eventually dropping to the $2,100 round figure.

 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

 


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