Published: Friday, May 24, 2024
The gold price stabilised on Friday, after two consecutive days of declines. It rose by 0.23%. It was still down over 3% for the week. This is the biggest weekly loss since December 20,23. The US Durable Goods Orders report was better than expected. However, a downward revision of the previous month’s read diminished its impact. This gave the green light to Gold Buyers.
After bouncing from a low of $2 325, the XAU/USD is trading at $2 332.
Before the weekend, gold traders were already in. The US economic data released on Thursday indicated that the US business environment had improved, reducing the likelihood of the Federal Reserve (Fed), cutting rates. Fed funds rate futures indicate that only 25 basis points in interest rate reductions are expected by 2024.
The data released on Friday did not increase investor optimism regarding Fed policy. The US Department of Commerce released a positive report on Durable Goods orders for April. However, the downward revision to March’s data weighed heavily on the Greenback. The fall in US Treasury yields and this boosted Gold’s recovery from its low.
The University of Michigan (UoM), in a recent survey that measures consumer confidence, found a slight improvement. However, inflation expectations were mixed.
The US 10-year Treasury Note yields 4.461%, and has lost one-and-a half basis points. This is a blow to the Greenback. The US Dollar Index, which measures the performance of the dollar against a basket other currencies, is trading at 104.70. This is down by 0.33%.
Daily digest: Market movers: Gold prices climb as the Greenback is battered
The gold price is boosted by a decline in US Treasury yields and a weaker US Dollar.
The US Durable Goods Orders for April increased by 0.7% MoM. This is higher than the expected -0.8% decline but lower than the revised downwardly figures of 0.8% in March.
The University of Michigan Consumer Sentiment Index in May was 69.1, which is lower than April’s reading of 77.2, but higher than the forecast of 67.5. The inflation expectation for the next year increased slightly from 3.2% to 3.3%, but five-year expectations did not change.
S&P Global has released the final US PMI for May. Manufacturing PMI increased to 50.9, exceeding both April’s 50.0 and estimates. The Services PMI increased to 54.8, a significant increase over April’s 51.3 and forecasts.
FOMC minutes showed that Fed officials were still unsure about the level of policy restrictions. The Fed officials added that it would take “longer than originally anticipated” to gain confidence in the inflation reaching 2%.
According to an article published in The Wall Street Journal, central banks from emerging markets were buying gold. Western sanctions against Russia following its invasion of Ukraine were the catalyst for this buying.
The World Gold Council has revealed that central bankers have added 2,200 tonnes of gold since Q3 2020.
Technical Analysis: Gold price holds gains above $2.330
The uptrend in gold remains intact despite the recent retreat towards $2,330. Even though the Relative Strength Index has turned negative, it could surpass the 50-midline. This would indicate that buyers have moved in.
If XAU/USD rises above $2350, this would reveal the $2400 mark. Buyers will continue to make gains as they aim for the $2,450 high, then the $2,500 level.
If the bears are still in control, they will need to lower the XAU/USD price below the low of 2,303 on May 8. The May 3 cycle low, $2,277, would then follow.
Gold FAQs
Gold has played an important role in the history of mankind as it was widely used as a medium of exchange and a store for value. Gold is a popular investment in turbulent times, not only because of its beauty and use as jewelry. As it is not dependent on any particular issuer or government, gold is widely regarded as a hedge to inflation and depreciating currency.
The largest gold holders are central banks. To support their currencies during turbulent times, central bankers tend to diversify and purchase Gold in order to increase the perceived strength of their economy and currency. A country with high Gold reserves may be seen as a reliable source of information about its solvency. According to the World Gold Council, central banks will add 1,136 tonnes worth approximately $70 billion in gold to their reserves by 2022. This is the largest yearly purchase ever recorded. The gold reserves of central banks in emerging economies like China, India and Turkey have been rapidly increasing.
Gold is inversely correlated with US Treasuries and the US Dollar, both of which are major safe-haven and reserve assets. When the dollar depreciates Gold tends rise. This allows investors and central bankers to diversify assets during turbulent times. Gold and risk assets are also inversely related. Gold prices tend to fall when the stock market is on a rally, but they tend to rise when riskier markets are in decline.
Price changes can be caused by a variety of factors. Gold’s safe-haven status can cause its price to rise quickly due to geopolitical instability and fears of a recession. Gold is a yieldless asset and tends to increase with lower interest rates. However, higher costs of money can weigh down the yellow metal. Most moves are still influenced by the US Dollar’s (USD) behavior, as the asset (XAU/USD) is priced in dollars. Gold is more likely to rise in price if the Dollar is weak.
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