Gold Price Analysis: Factors Driving Movement in XAU/USD
- Gold regains positive traction and stalls the overnight pullback from the all-time peak.
- Retreating US bond yields prompts some USD profit-taking and benefits the XAU/USD.
- Geopolitical risks and the US political uncertainty contribute to the intraday move up.
Gold price (XAU/USD) witnessed an intraday turnaround on Wednesday and tumbled around $50 after hitting a fresh record high, around the $2,760 region. Here’s a breakdown of the key factors influencing the movement in the precious metal:
Market Movers Impacting Gold Price
- The surge in US Dollar and US Treasury bond yields triggered an intraday profit-taking slide in Gold price on Wednesday.
- Robust US macro data suggested a strong economy, dampening hopes for aggressive easing by the Federal Reserve.
- Comments from influential Fed officials indicate modest interest rate cuts over the next year.
- Traders are pricing in a 90% chance of a 25 basis points rate cut by the Fed in November.
- Speculations around the US Presidential election outcome fuel inflation-generating tariff concerns.
- Concerns over increased deficit spending under different political scenarios impact Gold price.
- Geopolitical tensions in the Middle East contribute to safe-haven demand for Gold.
Technical Analysis of Gold Price
From a technical perspective, the short-term ascending channel breakdown signals caution for bullish traders. Here are the key technical levels to watch:
- A break below $2,700 could lead to further downside towards $2,685 support.
- The $2,730-2,732 area acts as an immediate hurdle for Gold price.
- Resistance is seen near $2,750, with potential for a move towards $2,770-2,775 and $2,800 levels.
Gold FAQs
- Role of Gold: Gold is a safe-haven asset, hedge against inflation, and widely used by central banks.
- Central Bank Holdings: Central banks increase Gold reserves to support currencies in turbulent times.
- Correlation with USD and Treasuries: Gold price is inversely correlated with the US Dollar and risk assets.
- Factors Affecting Gold Price: Geopolitical instability, interest rates, and USD behavior impact Gold price.
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.