The Gold price (XAU/USD) is facing challenges as the US Dollar (USD) gains strength due to reduced expectations of a 50 basis point rate cut by the Federal Reserve (Fed). Investors are adjusting their bets following mixed US monthly jobs report which has lifted the USD Index (DXY) back closer to its monthly peak. This has created a headwind for the yellow metal as traders look for more guidance on Fed rate cut decisions.
Despite the downward pressure on Gold price, the technical setup suggests prospects for a potential breakout through a short-term trading range. This multi-week-old trading range has kept the XAU/USD confined as investors await further developments on the Fed’s rate-cutting cycle. The upcoming release of US consumer inflation figures will be a key factor in shaping market sentiment towards Gold.
Traders are currently pricing in a 71% chance of a 25-basis-point rate cut at the next FOMC meeting, with a 29% chance of a 50-basis-point reduction. The release of US consumer price data, along with the Producer Price Index, will provide more clarity on the direction of Fed rate cut expectations. Comments from Fed officials like John Williams, Christopher Waller, and Austan Goolsbee also influence market sentiment towards Gold.
From a technical perspective, the current range-bound price action indicates the formation of a rectangle on the daily chart. While oscillators are holding in positive territory, a sustained breakout through the trading range resistance or the all-time peak will be needed to confirm further upward movement. On the downside, support levels are seen near $2,485 and $2,470, with a potential slide towards the 50-day Simple Moving Average (SMA) support if the lower boundary of the trading range is broken.
Gold has historically been used as a store of value and medium of exchange, in addition to its ornamental use in jewelry. It is widely regarded as a safe-haven asset, especially during turbulent times, and a hedge against inflation and depreciating currencies. Central banks hold significant Gold reserves to maintain trust in their solvency and currency strength.
Gold has an inverse correlation with the US Dollar and US Treasuries, major reserve and safe-haven assets. It also shows an inverse correlation with risk assets, leading to price movements influenced by geopolitical instability, economic fears, interest rates, and currency fluctuations. The USD’s performance plays a crucial role in determining Gold prices due to its pricing in dollars.
The Gold price is currently facing headwinds from USD strength and reduced expectations of a larger Fed rate cut. The technical outlook suggests potential for a breakout, but market sentiment will heavily rely on upcoming data releases and Fed comments. Gold’s role as a safe-haven asset and its correlations with major financial instruments will continue to shape its price movements in the near term. Investors and traders will need to closely monitor developments in the broader financial markets to gauge the future direction of Gold price.
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