Gold Price Forecast: Will Gaza conflict truce impede XAU/USD record-setting rally?
|- Gold price storms through $2,350, a new record high, despite easing Israel-Hamas geopolitical tensions.
- Expectations of a surge in central banks’ gold buying offset strong US Nonfarm Payrolls-led hawkish Fed bets.
- Gold price could reverse on profit-taking amid extremely overbought RSI, ahead of US CPI data.
Gold price is holding gains near a new record high above $2,350 in Monday’s Asian trading, as the US Dollar (USD) struggles amid a mixed market mood and a pause in the US Treasury bond yields rally.
China buying drives Gold price through the roof
Gold price saw a sudden spike of about $30 and reached a new all-time high of $2,354 after Chinese markets opened, as traders reacted positively to the surge in Gold purchases by the People’s Bank of China (PBoC).
A Chinese official reported on Sunday that the Chinese central bank purchased Gold for its reserves for the 17th straight month in March. Bullion held by the PBoC rose to 72.74 million fine troy ounces last month, the official said.
Further, markets are likely front-running their Gold long positions, anticipating robust Gold buying by global central banks later this year. Gold demand from central banks totaled 1,037.4 metric tons in 2023, just below the record high set in 2022 at 1,081.9 metric tons, according to the World Gold Council (WGC).
The WGC report showed that global central bank purchases of gold rose by 19 metric tons in February, up for a ninth consecutive month.
Looking ahead, traders remain wary that Gold price will hold on to its record-setting rally, as repositioning and profit-taking could creep in ahead of Wednesday’s US Consumer Price Index (CPI).
Reduced bets of a June US Federal Reserve (Fed) interest rate cut and easing geopolitical tensions between Israel and Hamas could also play a spoilt sport to the relentless upward trajectory in Gold price.
According to CME Group’s FedWatch Tool, tThe odds of a June Fed rate cut fell from about 62% to about 48% in the aftermath of a strong US labor market report released on Friday. The US economy added 303,000 jobs in March, against expectations of 200,000 job additions and the 275,000 previous figure.
On the geopolitical front, Egypt’s Al-Qahera News state-affiliated TV channel said early Monday, citing a senior Egyptian source, “progress has been made in discussions in Cairo on a Gaza conflict truce and there is agreement on the basic points between all parties involved.”
Several headlines crossed the wires over the weekend, reporting that Israel and Hamas have both sent teams to Egypt for fresh talks on a potential ceasefire that could be reached by Eid al-Fitr.
Gold price technical analysis: Daily chart
The extremely overbought 14-day Relative Strength Index (RSI) conditions continue to caution Gold buyers, with a retracement toward the previous record high of $2,331 in the offing.
The extension of the Gold price pullback could test the April 4 high at $2,305, below which the April 5 low of $2,268 could be tested.
A breach of the latter could fuel a sharp drop toward the $2,250 psychological barrier.
However, if Gold buyers succeed in defying the corrective pressures, a fresh rally toward the $2,370 round figure cannot be ruled out after acceptance above the $2,350 psychological level.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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