Gold prices, represented by XAU/USD, are experiencing an upward trend on Thursday, reaching levels in the upper $2,310s. This surge follows decisions by several major central banks to either cut interest rates or indicate a greater inclination towards future rate cuts. Such actions diminish the “opportunity cost” associated with holding gold, as it is a non-interest-bearing asset, thereby enhancing its attractiveness to investors.
Furthermore, ongoing tensions, such as the stalemate in ceasefire negotiations between Israel and Hamas and reports of escalating situations on the frontlines in Ukraine, are amplifying geopolitical risks. In times of heightened geopolitical uncertainty, gold often serves as a safe-haven asset, leading to increased demand and further bolstering its price.
Gold Rises as Global Central Banks Act on Lowering Interest Rates
Gold prices are on the rise as central banks globally embark on a path of reducing interest rates, a departure from their previous stance of maintaining high rates to combat inflation.
In Sweden, the Riksbank took the significant step of cutting interest rates by 0.25% to 3.75%, marking the first such reduction since 2016. Meanwhile, in the UK, the Bank of England (BoE) opted to keep rates unchanged, albeit with a narrower 7-2 vote margin, indicating a growing inclination towards rate cuts compared to the previous meeting.
Moreover, the Swiss National Bank (SNB) implemented interest rate cuts during 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 strongly hinted at an upcoming interest rate cut in June, further contributing to the global trend of easing monetary policy.
Gold Price Surges on Positive China Data and Demand Outlook
Gold prices experienced an upswing on Thursday following the release of Chinese trade figures, which revealed a larger-than-anticipated increase in Chinese exports by 1.5% year-over-year in April. This rebound comes after a 7.5% decline in the previous month. The data also indicated a notable surge in imports by 8.4%, surpassing the forecasted 5.4% and the preceding 1.9% decrease. Given China’s significant role in the global gold market, robust economic indicators from the country exert influence on its valuation
World Gold Council Spotlights Asian and Central Bank Demand
The World Gold Council (WGC), a reputable authority on the global gold market, emphasized Asian demand in its recent report on the gold market in April and its future prospects. While the report observed a decline in Indian demand and stagnant uptake in the gold futures market, it highlighted positive trends in Chinese demand and US ETF flows, which aligned with strong demand for Asian ETFs.
The report underscored the significance of central banks as major purchasers of gold, along with the presence of geopolitical risks. Despite gold reaching new all-time highs in April but retracting by month-end, the report suggested that Chinese purchasing and central bank activity seemed to be key factors supporting the market.
Looking ahead, the WGC cautioned about the rising risks of stagflation, noting fragile growth and persistent inflation concerns. It suggested that Asian investors might continue to attract attention amidst these developments.
US Outlook: Potential Cap on Upside
The potential for gold prices to struggle gaining momentum arises from the unique stance of the US, which notably has not yet signaled readiness to implement interest rate cuts. This contrast with other major economies accentuates the strength of the US Dollar (USD), adding another obstacle for gold priced in USD.
Despite recent indications of weakening in the US labor market, as reflected in last week’s Nonfarm Payrolls data, suggesting a possible earlier-than-expected interest rate cut by the Federal Reserve (Fed), subsequent comments from Fed officials indicate a persistent reluctance towards rate adjustments.
For instance, Boston Fed President Susan Collins remarked that the return of inflation to desired levels might take longer than previously anticipated, implying a need for the Fed to maintain high interest rates for an extended period. Similarly, Minneapolis Fed President Neel Kashkari suggested that current interest rate levels might need to be upheld for a prolonged duration to effectively combat inflation.
Market sentiment, as reflected in the CME FedWatch tool, indicates declining probabilities of rate cuts in September or earlier, with the odds dropping from 85% to 65% in September and remaining at 78% in November, down from almost 100% previously.
Technical Analysis: Gold Price Retracts from Resistance at Range’s Peak
The price of gold (XAU/USD) has revisited and retreated from the upper boundary of a narrow trading range, approximately at $2,326. Presently, it is receiving support from both the 200 and 50 Simple Moving Average (SMA) indicators on the 4-hour chart, situated in the upper $2,310s.
On the XAU/USD 4-hour chart, the gold price has recently tested and pulled back from the resistance level situated around $2,326. Currently, it is finding support from both the 200 and 50 Simple Moving Average (SMA) indicators, positioned in the upper $2,310s.
The Moving Average Convergence Divergence (MACD) indicator is displaying a slightly negative outlook, indicating red bars on the histogram. Additionally, the MACD line has crossed beneath the signal line, signaling a sell indication.
There’s a possibility that the price might regress back towards the lower end of the range, approximately around $2,280.
Despite this, the bullish trend of the gold price on both the medium and long-term charts (daily and weekly) provides overall support.
A breakout above the upper boundary of the range would likely indicate a potential upward movement towards a conservative target of $2,353 – which represents the top of wave B and the 0.681 Fibonacci extension of the range’s height extrapolated upwards. In a more optimistic scenario, it could even reach $2,370.
A conclusive breakout would be characterized by an extended green candlestick surpassing the range’s ceiling and closing near its high, or three consecutive green candlesticks surpassing the respective level.
Measured Move Analysis: Unfinished Business
The gold price might still be in the process of unfolding a bearish Measured Move price pattern that commenced on April 19.
Measured Moves typically consist of three waves denoted as A, B, and C, with C often equaling the length of A or a Fibonacci 0.681 extension of A. The price has declined to the conservative projection for wave C at $2,286, corresponding to the Fibonacci 0.681 extension of wave A.
However, there remains the possibility for wave C to extend further downward and reach the 100% extension of wave A at $2,245. This scenario would be confirmed by a clear break below the trading range and the low observed on May 3 at $2,277.
