- The strength of gold prices is evident as geopolitical tensions bolster demand for safe-haven assets.
- Concurrently, the US dollar experiences a correction amidst concerns over persistent inflation in other advanced economies.
- While Fed Mester expresses confidence in policy normalization, he urges against rushing the process.
Gold prices (XAU/USD) rebound to $2,380 during Thursday’s early American session following losses on Wednesday. The precious metal maintains its gains amid concerns that escalating tensions in the Middle East, particularly between Israel and Iran, could exacerbate and potentially spread beyond Gaza if Israel responds forcefully.
Israel’s Prime Minister Benjamin Netanyahu, as reported by The Times, asserts that “their state will do everything necessary to defend itself,” following discussions with foreign ministers from the United Kingdom and Germany.
The resurgence in gold is also propelled by a decrease in US Treasury yields, which are influenced by the Federal Reserve’s interest rate projections. 10-year US bond yields retreat to 4.57% from a more than five-month peak of 4.70%. Reduced yields on interest-bearing assets mitigate the opportunity cost of holding non-interest-bearing assets like gold.
Daily digest market movers: Gold price moves higher as US Dollar corrects
- Gold prices reclaim the majority of Wednesday’s losses, surging to $2,380 as investors maintain concerns over geopolitical tensions. The continued fervor for gold among traders stems from apprehensions that Israel might retaliate against Iran’s recent attack, which involved the launch of numerous drones and missiles.
- A correction in the US Dollar further bolsters the precious metal. The five-day winning streak of the US Dollar comes to a halt as traders anticipate delays in rate cut plans by other central banks amidst persistent inflationary pressures. Consequently, the US Dollar Index (DXY), tracking the greenback against six major currencies, sharply declines to 105.75. Typically, dollar-denominated gold becomes more appealing in such a scenario of a weakened US Dollar.
- Short-term demand for the US Dollar remains robust as Federal Reserve (Fed) policymakers foresee sustained higher interest rates until convincing evidence of inflation reaching the desired 2% rate is obtained. Fed Chair Jerome Powell emphasized on Tuesday that recent data hasn’t instilled confidence among policymakers to consider rate cuts. Instead, the stance is to maintain higher rates for an extended period to build that confidence.
- Cleveland Fed Bank President Loretta Mester echoed this sentiment on Wednesday, advocating for a restrained monetary policy framework. While Mester remains optimistic about eventually gaining confidence to lower interest rates and normalize policy, she advises against hasty actions.
- Meanwhile, the US Department of Labor reports consistent Individual Jobless Claims for the week ending April 12, with claims mirroring the previous week’s figure of 212K, slightly below the anticipated 215K.
Technical Analysis: Gold price aims to recapture $2,400
During Thursday’s London session, gold price climbs to $2,380 following a slight dip on Wednesday. The precious metal continues to trade within the $2,350-2,400 range observed over the past two sessions. However, the upward movement is constrained as momentum indicators show signs of cooling down, having reached extremely overbought levels. The 14-period Relative Strength Index (RSI) on the daily chart declines slightly after reaching a peak around 85.00. Despite this, the broader-term demand remains robust, with the RSI staying within the bullish range of 60.00-80.00.
Looking at potential downside levels, the April 5 low near $2,268 and the March 21 high at $2,223 are significant support zones for the gold price.
