The price of gold (XAU/USD) is on the rise Thursday, hovering around $2,320, following moves by several major central banks to either cut interest rates or indicate a greater inclination to do so in the future. These interest rate reductions diminish the “opportunity cost” associated with holding gold, a non-interest-bearing asset, thereby enhancing its attractiveness as an investment option.
Moreover, a deadlock in ceasefire negotiations between Israel and Hamas, coupled with reports of escalating tensions on the Ukrainian front, are adding to upward pressure on gold prices due to heightened geopolitical risks. Gold tends to benefit as a safe-haven asset during times of increased geopolitical uncertainty.
Gold Prices Surge as Global Central Banks Implement Interest Rate Reductions
The price of gold is increasing as central banks worldwide initiate interest rate cuts after maintaining elevated levels for several years to combat inflation.
In Sweden, the Riksbank decided to lower interest rates by 0.25% to 3.75%, marking the first reduction since 2016. Meanwhile, in the UK, the Bank of England (BoE) opted to keep rates unchanged in a narrower 7-2 vote, deviating from the possibility of a rate cut. This slight shift from the previous 8-1 majority indicates a growing openness among policymakers towards considering rate reductions.
Moreover, the Swiss National Bank (SNB) led the way by lowering its interest rates at its March meeting, while the Reserve Bank of Australia (RBA) surprised markets with a dovish stance during its latest policy meeting. Additionally, the European Central Bank (ECB) has virtually confirmed its intention to proceed with an interest rate cut in June.
Gold Prices Surge Amid Positive China Data and Optimistic Demand Outlook
On Thursday, gold prices experienced an increase following positive Chinese trade figures, which indicated a larger-than-anticipated 1.5% year-on-year growth in Chinese exports for April. This rebound came after a 7.5% decline the previous month.
The data also revealed an 8.4% rise in imports, surpassing the forecasted 5.4% and the previous month’s 1.9% decrease. Given China’s significant role in the global gold market, such robust economic data from the country influences gold’s valuation.
World Gold Council Emphasizes Asian and Central Bank Demand Trends
The latest report from the World Gold Council (WGC), a reputable indicator of global gold market trends, underscored the significance of East Asian demand and central bank activity. While Indian demand experienced a decline and gold futures market uptake remained stagnant, the report highlighted a positive turn in Chinese demand and US ETF flows, alongside robust demand for Asian ETFs.
Central banks were highlighted as pivotal buyers, with geopolitical risks also emphasized. The report noted that gold reached new all-time highs in April but experienced a pullback by month-end, with Chinese buying and central bank activity serving as major support drivers.
In terms of the outlook, the WGC pointed out that stagflation risks are increasing, with fragile growth and persistent inflation concerns. Attention from Asian investors is expected to persist according to the report.
US Economic Forecast May Limit Upward Potentia
Gold prices may face difficulty in gaining momentum, primarily due to the US Federal Reserve (Fed) standing out as the sole major central bank not yet inclined to reduce interest rates. This contrast in stance between the Fed and other central banks is also bolstering the US Dollar (USD), which in turn presents another obstacle for the USD-denominated price of gold.
Despite recent indications from US Nonfarm Payrolls data suggesting a weakening labor market, potentially prompting earlier rate cuts by the Federal Reserve (Fed), subsequent remarks from Fed officials have displayed a persistent reluctance towards interest rate reductions.
Boston Fed President Susan Collins remarked on Wednesday that inflation seemed poised to persist longer than previously anticipated, implying a necessity for the Fed to maintain relatively high interest rates for an extended period. Similarly, Minneapolis Fed President Neel Kashkari suggested that interest rates would likely need to remain unchanged for an extended duration to combat inflation effectively.
Market indicators such as the CME FedWatch tool reflect diminishing probabilities of rate cuts, with the likelihood of rate reductions in September or earlier dropping to 65% from 85% a week ago, and to 78% in November from nearly 100% previously.
Gold Price Retraces as It Hits Resistance at Range High: A Technical Analysis
The price of gold (XAU/USD) has revisited and retraced from the upper boundary of a small-scale range near $2,326. At present, it is receiving backing from both the 200 and 50 Simple Moving Average (SMA) on the 4-hour chart, situated in the $2,310s.
XAU/USD 4-Hour Chart Analysis
The Moving Average Convergence Divergence (MACD) indicator indicates a slight negative sentiment, displaying red bars on the histogram. Additionally, the MACD line has crossed beneath the signal line, signaling a selling opportunity.
There’s a possibility that the price might retreat towards the lower end of the range, approximately around $2,280.
However, the bullish trend of the gold price observed on both the medium and long-term charts (daily and weekly) provides overall supportive dynamics.
A decisive breakout above the range’s upper limit would likely indicate a move towards a conservative target at $2,353 – which aligns with the top of wave B and the 0.681 Fibonacci extension projected higher from the range’s height. In an optimistic scenario, it could even potentially reach $2,370.
A decisive breakout would be characterized by an extended green candlestick surpassing the range’s upper boundary and closing near its peak. Alternatively, it could involve three consecutive green candlesticks breaching above the respective level.
Analysis of Measured Move and Unresolved Market Dynamics
The current gold price movement potentially indicates an ongoing development of a bearish Measured Move price pattern, initiated on April 19.
Measured Moves typically follow a zig-zag pattern comprising three waves labeled A, B, and C, with wave C usually mirroring the length of wave A or a Fibonacci 0.681 proportion of wave A. The price has descended to the conservative estimate for wave C, reaching $2,286, which corresponds to the Fibonacci 0.681 level of wave A.
However, there remains the possibility for wave C to extend further downward and reach the 100% extrapolation of wave A, standing at $2,245. Such a scenario would be confirmed by a decisive breach below the trading range and the low point of May 3 at $2,277.
