- The price of Gold rises for the second consecutive day, although it lacks continuation.
- Geopolitical tensions, along with falling US bond yields, provide support ahead of the Federal Open Market Committee's decision.
- Uncertainty over the timing of the Fed's first rate cut could limit any positive move.
Gold price (XAU/USD) attracts some buyers for the second day in a row on Tuesday, although it lacks bullish conviction and remains below the $2,040-$2,042 resistance zone at the start of the European session. A new escalation of conflicts in the Middle East has raised the risk of a broader crisis in the region and dampened recent market optimism. This, along with the current decline in US Treasury yields, turn out to be key factors lending support to the underperforming yellow metal.
For its part, the US dollar fails to advance significantly and remains in last week's known range, as traders seek more clarity on when the Federal Reserve (Fed) will begin to cut rates. This also favors the price of Gold denominated in dollars, although it seems difficult for a significant appreciation to occur before the FOMC monetary policy meeting that begins this Tuesday. This warrants some caution before positioning for further gains.
Daily Market Summary: Gold Price Attracts Some Haven Momentum Flows Amid Rising Geopolitical Risks
- Investors are choosing to stay on the sidelines ahead of the Federal Open Market Committee (FOMC) monetary policy meeting that begins this Tuesday, leading to range-bound gold price action on Tuesday.
- Wednesday's Fed decision and accompanying monetary policy statement will be scrutinized for clues about the timing of the first rate cut, which will weigh on the yield-less yellow metal.
- Meanwhile, the continued decline in US Treasury yields, coupled with the risk of a further escalation of geopolitical tensions in the Middle East, lends support to the safe-haven XAU/USD.
- The US Treasury lowered its federal borrowing forecast to $760 billion, down from a previous estimate of $816 billion, and moved the 10-year US government bond yield closer to 4.0%.
- President Joe Biden will reportedly authorize US military action in response to the drone attack by pro-Iran militias near the Jordan-Syria border that left three US soldiers dead.
- A direct US confrontation with Iran will negatively affect global crude oil supplies, potentially triggering a potential inflationary shock to the global economy and hampering global growth.
- Preliminary Eurozone GDP data is due out on Tuesday, along with the Conference Board Consumer Confidence Index and US JOLTS job openings data, and could provide some boost.
Technical Analysis: Gold price must overcome the $2,040-$2,042 barrier for the bulls to take control
From a technical point of view, bulls could still wait for a sustained move beyond the $2,040-$2,042 resistance zone before opening new positions and positioning themselves for further gains. Since the oscillators on the daily chart have just entered positive territory, the price of Gold could rise towards the $2,077 resistance zone before attempting to regain the $2,100 level.
On the other hand, the low around the $2,020-$2,019 area seems to protect the immediate decline before the $2,012-$2,010 area and the psychological level of $2,000. A convincing break below the latter will be considered a new trigger for the bears and will expose the 100-day SMA, currently near the $1,978-$1,977 region. The price of Gold could fall to the important 200-day SMA, near the $1,964 region.
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 Turkey 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.
