- Gold reaches a record of $2,431, but falls due to the strength of the US dollar and less concern about inflation.
- Geopolitical tensions between Iran and Israel unleash volatility in the markets, initially increasing demand for safe haven assets.
- Comments from Fed officials boost the US dollar, a headwind for gold prices.
The price of Gold fell during the North American session after refreshing all-time highs during the session on Friday. Geopolitical risks spurred a flight to safety, driving the price of the gold metal towards $2,431, a new all-time high, before retreating on the overall strength of the US Dollar. At the time of writing, XAU/USD is trading at $2.352, losing 0.64% on the day.
According to journalistic sources, Iran is preparing an attack on Israeli soil following the Israeli attack in which seven Iranian officials died two weeks ago.
Apart from this, the latest US inflation figures revealed on Wednesday and Thursday sparked volatility in the precious metal. After the publication of the US Consumer Price Index (CPI), the precious metal fell to $2,303. However, the fall was short-lived, as inflationary pressures eased following the publication of the Production Price Index (PPI), which was below the general consensus and some of the February readings.
Federal Reserve officials gave statements, led by Boston Fed President Susan Collins, Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid, largely casting more cold water on rate cut hopes.
Daily Market Summary: Gold Falls Amid Negative Sentiment on Strong US Dollar
- The University of Michigan's preliminary consumer sentiment index for April showed a decline to 59.7, below the 79.0 expected. In addition, short-term inflation expectations for next year rose to 3.1%, above the previous forecast rate of 2.9%. Long-term inflation expectations, five years ahead, also increased, going from 2.8% to 3.0%.
- Mixed inflation data out of the United States (US) led investors to trim expectations of Fed rate cuts. Chicago Stock Exchange (CBOT) data suggests futures traders expect only two cuts in the federal funds rate, since they anticipate that the main reference rate will end the year around 4.915%.
- The US Dollar Index (DXY) also saw a substantial rise, soaring more than 0.64% to reach a new yearly high of 106.10 points.
- Boston Fed President Susan Collins said the first rate cut could be delayed, while adding that she expects to cut rates twice instead of three.
- Chicago Fed's Austan Goolsbee said multiple inflation readings are higher than he would like, adding that Middle East instability is a wild card for the Fed when it comes to oil and gas prices. the gas; a negative supply shock is not good.
- Jeffrey Schmid, of the Kansas City Fed, stressed that the current stance of US monetary policy is appropriate, given persistent levels of inflation. He called for patience with interest rates, advocating a cautious approach until it is clear that inflation retreats towards the 2% target.
- The World Gold Pool reveals that the People's Bank of China was the largest buyer of the yellow metal in February, increasing its reserves by 12 tons to 2,257 tons.
Technical Analysis: Gold Rally Stalls as XAU/USD Falls Below $2,400
Gold's bullish trend will continue despite falling towards the $2,350 area, after reaching an all-time high above $2,400. Should sellers push prices below $2,350, the next support level would be the April 10 low of $2,319, followed by the April 8 daily low of $2,303. Once broken, the next support would be the March 21-session high at $2,222. New losses are expected at $2,200.
On the opposite side, further rises are expected above $2,400, with the next resistance at $2,431, followed by $2,450. The next milestone will be reaching $2,500.
Gold. This is the largest annual purchase since records exist. Central banks of emerging economies
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
