Gold price consolidates near weekly high; looks to US CPI for fresh impetus
- Gold price struggles to build on the overnight move up, though the downside seems limited.
- A modest USD bounce from a multi-month low and a positive risk tone cap the precious metal.
- Trade war fears and Fed rate cut bets support the XAU/USD pair ahead of the US CPI report.
Gold price (XAU/USD) trades near the weekly high during the Asian session on Wednesday and looks to build on the previous day's goodish rebound from the $2,880 region, or a one-week low. Investors remain worried about the potential economic fallout from US President Donald Trump's trade tariffs, which, in turn, is seen as a key factor that continues to underpin the safe-haven bullion. Moreover, expectations that the Federal Reserve (Fed) will cut interest rates several times this year amid concerns about a tariff-driven slowdown in the US economic activity lend additional support to the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) edges higher and recovers a part of the overnight losses to its lowest level since mid-October amid some repositioning trade ahead of the crucial US consumer inflation figures. Adding to this, the optimism over the passage of the six-month US funding bills, Ukraine's acceptance of the US proposal for a ceasefire with Russia, and a positive risk tone might cap gains for the Gold price. Nevertheless, the fundamental backdrop seems tilted in favor of bullish traders and supports prospects for a further appreciating move, suggesting that any corrective pullback might be seen as a buying opportunity.
Daily Digest Market Movers: Gold price traders opt to wait for the US inflation figures before placing fresh bets
- US President Donald Trump upped the ante in a trade war and said on Tuesday that he would double planned tariff increases on steel and aluminum coming from Canada to 50%, providing a strong boost to the safe-haven Gold price. Trump, however, reversed course in response to Ontario Premier Doug Ford's announcement to suspend a 25% surcharge on electricity sold to the US.
- The lower house of Congress narrowly passed a Republican spending bill that would avoid a government shutdown on March 14 and keep the US government open until September, further boosting investors' confidence. The bill now heads to the Senate and will need the support of at least seven Democrats to overcome the 60-vote filibuster threshold before sending it to Trump for his signature.
- Ukraine expressed readiness to accept the US proposal for an immediate, interim 30-day ceasefire with Russia after bilateral talks in Jeddah, Saudi Arabia. The US would now take the offer to Russia, which has not yet responded to the proposal. The development, however, remains supportive of a turnaround in the global risk sentiment and might act as a headwind for the precious metal.
- Over the weekend, Trump declined to rule out the possibility of a recession in the US and flagged some economic turbulence on the back of his policy agenda. This, along with signs of a cooling US labor market, continues to fuel speculations that the Federal Reserve would soon resume its rate-cutting cycle. In fact, traders are pricing in three rate cuts of 25 basis points each by the end of this year.
- This might keep a lid on any meaningful US Dollar recovery from its lowest level since mid-October touched on Tuesday and favors the XAU/USD bulls. Traders, however, might opt to wait on the sidelines and look forward to the crucial US Consumer Price Index (CPI) report, which might influence the Fed's rate-cut path and provide some meaningful impetus to the non-yielding yellow metal.
Gold price needs to break and stay above $2,928-2,930 for a sustained upward move
From a technical perspective, bulls might need to wait for a move beyond the $2,928-2,930 hurdle before positioning for further gains. The subsequent move up has the potential to lift the Gold price back towards the all-time peak, around the $2,956 area touched on February 24. Some follow-through buying will be seen as a fresh trigger for bulls and pave the way for the resumption of the recent well-established uptrend amid still positive oscillators on the daily chart.
On the flip side, weakness below the $2,900 mark might now find some support near the $2,880 region, or the weekly low. This is followed by the $2,860 region, below which the Gold price could accelerate the slide towards the late February swing low, around the $2,833-2,832 region, before eventually dropping to the $2,800 mark.
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.