The price of gold (XAU/USD) is marginally down in the $2,380 range on Thursday, following notable advances in the preceding session.Gold enthusiasts showcased strength after the unveiling of US inflation figures prompted a reassessment of interest rate forecasts, impacting both the US Dollar (USD) and the price of gold.
Gold Finds Stability Post-Rally Amid Release of US Data
Gold price is correcting back on Thursday amid profit taking after an over one percent rise on the previous day. The release of cooler US Consumer Price Index (CPI) data and Retail Sales for April led to a change in expectations for the future path of US interest rates, a key factor in Gold valuations.
The lower-than-expected CPI data reflected a disinflationary trend that brought forward the time when the Federal Reserve (Fed) is expected to make its long-awaited cut in interest rates. According to the CME FedWatch Tool, there is around 75% probability that the fed funds rate will be at lower levels after the September meeting. This is much higher than the 65% chance seen before the CPI release, according to FXStreet Editor Lallalit Srijandorn.
The expectation of lower interest rates is positive for Gold as it reduces the opportunity cost of holding the non-yielding asset vis-a-vis cash or bonds. Gold is further lifted by the loss of value of the US Dollar (USD) that attended the data, as like most commodities Gold is chiefly traded in US Dollars.
Still, the outlook for the precious metal remains positive against a backdrop of continued robust demand from central banks – in particular those in emerging markets – high levels of geopolitical risk and concerns regarding a fracturing of world trade along partisan lines.
Indeed, according to data from the World Gold Council (WGC), demand for Gold “rose by 3% to 1,238 tonnes, making it the strongest first quarter since 2016,” writes Srijandorn.
Technical Analysis: Gold Price Retraces Following Significant Rally
The price of gold (XAU/USD) has climbed close to but slightly below the resistance level at $2,400 as it continues its upward trend in the short term
XAU/USD 4-Hour Chart Analysis
The Relative Strength Index (RSI) indicates an overbought condition, advising traders against increasing their long positions due to the heightened risk of a market retracement. Exiting the overbought zone on the RSI could signal a deeper market correction.
Despite the cautionary note, the precious metal continues to demonstrate an upward trend. Following the adage “the trend is your friend,” the Gold price is expected to persist with a bullish trajectory. A breach of the $2,400 mark would likely result in further upward movement, targeting the next resistance levels at $2,417 (the April 19 high) and subsequently $2,430, representing the all-time high.
Additionally, the medium and long-term charts (daily and weekly) also exhibit bullish signals, providing a supportive environment for Gold’s upward momentum.
