Gold price jumps back closer to all-time peak, $2,600 remains in sight amid fresh USD weakness

• Gold price attracts fresh buyers on Wednesday amid a modest USD pullback from a one-week peak.
• Concerns about an economic slowdown, along with geopolitical risks, lend support to the commodity.
• A further recovery in the US bond yields could underpin the USD and cap the non-yielding metal.

Gold price (XAU/USD) regains positive traction following the previous day's pullback from the all-time peak and builds on its steady intraday ascent heading into the European session on Thursday. The US Dollar (USD) witnessed an intraday turnaround from a one-week high and for now, seems to have stalled its recovery from the lowest level since July 2023 touched the previous day. This, along with concerns about an economic downturn in the United States (US) and China, along with the risk of a further escalation of tensions in the Middle East, drive some haven flows towards the precious metal.

With Thursday's positive move, Gold price now seems to have snapped a two-day losing streak, though diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) might cap any further gains. In fact, the US central bank decided to start its policy-easing cycle by lowering borrowing costs by 50 basis points on Wednesday. The Fed, however, downplayed market expectations for oversized interest rate cuts going forward. This remains supportive of a modest uptick in the US Treasury bond yields, which could limit the USD losses and cap the upside for the non-yielding yellow metal. 

Daily Digest Market Movers: Gold price remains within striking distance of record high amid renewed USD selling

• Gold prices faded from the post-FOMC spike to a fresh record high and dived to a multi-day low on Wednesday amid a goodish US Dollar recovery from its lowest level since July 2023.
• The Federal Reserve lowered its benchmark interest rate by 50 basis points to the 4.75%-5% range and forecast rates falling by another half of a percentage point by the end of this year. 
• In the so-called dot plot, Fed members projected rates falling to 3.4% in 2025, down from a prior forecast of 4.1%, and declining to 2.9% in 2026, down from a prior forecast of 3.1%.
• The new economic projections revealed that the Fed doesn't see inflation returning to the 2% target before 2026, raising questions about the magnitude of interest rate cuts going forward. 
• Meanwhile, Fed Chair Jerome Powell, during the post-meeting press conference, downplayed concerns about a recession amid cooling inflationary pressures and a very solid labor market.  
• This, in turn, triggered a sharp rise in the US Treasury bond yields, which extends through the Asian session on Thursday and assists the Greenback to build on its recovery momentum. 
• Iran-backed Hezbollah said it attacked Israeli artillery positions with rockets on Wednesday in retaliation to blasts in Lebanon, which killed 20 people and injured more than 450.
• Israel’s Defence Minister Yoav Gallant declared the start of a new phase in the war, raising the risk of a wider Middle East conflict, which could benefit the safe-haven XAU/USD. 

Technical Outlook: Gold price bulls might wait for a move beyond $2,582-2,583 hurdle before placing fresh bets

From a technical perspective, any subsequent slide is more likely to find decent support near the previous cycle high, around the $2,532-2,530 area. Some follow-through selling will expose the next relevant support near the $2,517-2,515 area, below which the Gold price could accelerate the corrective decline to the $2,500 psychological mark. The downward trajectory could extend further towards the $2,470 confluence – comprising the 50-day Simple Moving Average (SMA) and the lower boundary of a short-term ascending channel. The latter should act as a key pivotal point, which if broken decisively might shift the near-term bias in favor of bearish traders. 

On the flip side, the $2,577-2,578 region now seems to act as an immediate hurdle ahead of the $2,600 mark, or the all-time peak touched on Wednesday. The subsequent move up could allow the Gold price to challenge the trend-channel resistance, currently pegged near the $2,610-2,612 region. A convincing breakout through the said barrier will be seen as a fresh trigger and set the stage for an extension of the recent well-established uptrend witnessed over the past three months or so.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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