- Gold price consolidates early Monday after refreshing the record high on Friday at $2,195.
- Dollar and Treasury yields pause downtrend, as the focus shifts to the US CPI inflation data.
- Overbought RSI conditions on the daily chart continue to threaten a Gold price correction.
Gold price is treading water near $2,180 early Monday, having witnessed a 4.50% upsurge in the previous week. Gold buyers take a breather amid a pause in the US Dollar (USD) downward spiral, as investors await the high-impact Consumer Price Index (CPI) data from the United States (US) for the next directional impetus.
After US Nonfarm Payrolls, focus shifts to inflation data
The US Dollar came under renewed selling pressure, as the US Treasury bond yields wilted on a sharp downward revision to the headline US NFP figure for January. The February NFP increased by 275K, compared to market forecasts of 200K while the January figure of 353K was revised lower by 124K to 229K. Meanwhile, Average Hourly Earnings, a measure of wage inflation, rose 4.3% YoY in February, slowing from a 4.4% growth recorded previously.
The US jobs report overall pointed to loosening labor market conditions, backing the case for a US Federal Reserve (Fed) interest rate in June. Markets are currently pricing in about a 75% chance that the Fed could begin easing rates in June, higher than a 63% probability seen last Thursday, according to the CME FedWatch Tool.
Amidst growing expectations of a June Fed rate cut, Gold price continued to gain ground, refreshing the all-time high just shy of the $2,200 barrier.
In Monday’s trading so far, Gold price is trading around a flat line, holding the corrective move lower from lifetime highs, as traders take account of the resurfacing inflationary pressures in China and discouraging economic data from the US, as they resort to repositioning before Tuesday’s all-important US CPI inflation data release.
Expectations of a likely dovish Fed policy pivot as early as June would be confirmed by the US inflation report, especially if the data surprises to the downside. In the lead-up to the US CPI showdown, Gold price could see the correction resume on a bout of profit-taking.
Gold price technical analysis: Daily chart
The near-term technical outlook for Gold price remains more or less the same, with a correction likely in the offing amid extremely overbought conditions on the daily chart, as indicated by the 14-day Relative Strength Index (RSI).
Should the correction gain traction, Gold sellers could test the initial support at $2,154, the previous day’s low.
The next cushion is seen at $2,146, where Thursday’s low and the 23.6% Fibonacci Retracement (Fibo) level of the recent rally from the February 14 low of $1,984 to the all-time high of $2,195 coincide.
A sustained break below that level could help Gold sellers flex their muscles toward the 38.2% Fibo level of $2,115.
On the other hand, Gold buyers need to capture the $2,200 threshold on a daily closing basis to extend the uptrend. The next bullish target is seen at the $2,250 psychological level.
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.
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