Gold prices bounced back despite a stronger US dollar, drawing in buyers during Wednesday’s Asian trading hours. The demand for safe-haven assets like gold increased due to geopolitical tensions and uncertainty, along with ongoing central bank purchases. However, comments from Federal Reserve officials suggesting a less dovish stance could dampen hopes for interest rate cuts in 2024, despite weaker-than-expected US employment data in April, potentially pushing gold prices down.
Later on Wednesday, Federal Reserve policymakers Philip Jefferson, Susan Collins, and Lisa Cook are scheduled to speak. If their comments lean towards a hawkish stance, it could strengthen the US dollar and weigh on gold prices. Gold traders will keep an eye on the University of Michigan’s consumer sentiment reading due on Friday.
In other news, Minneapolis Fed Bank President Neel Kashkari stated on Tuesday that it’s premature to claim that inflation has stopped rising. He suggested that the Fed might consider interest rate cuts if inflationary pressures ease. Richmond Fed President Thomas Barkin also mentioned that the current interest rates are high enough to cool the economy and bring inflation back to the 2% target.
Financial markets are currently pricing in nearly a 50 basis points cut in interest rates from the Fed this year, with a 65.7% chance of a rate cut of at least 25 basis points in September, according to CME’s FedWatch Tool. Additionally, the preliminary University of Michigan Consumer Sentiment Index, estimated to decrease from 77.2 in April to 76.0 in May, will be released on Friday.
Israeli forces carried out strikes on Gaza’s southernmost city despite Hamas agreeing to a ceasefire proposal on Monday. Israel stated that the conditions of the ceasefire did not meet its demands, according to the New York Times.
Meanwhile, the People’s Bank of China (PBoC) added 60,000 troy ounces of gold to its reserves in April, marking the 18th consecutive month of purchases.
On the technical side, while gold prices softened for the day, the longer-term outlook remains positive. XAU/USD is trading above the crucial 100-day Exponential Moving Average (EMA) with an upward slope.
In the short term, gold prices have been confined within a descending trend channel since mid-April, confirmed by the 14-day Relative Strength Index (RSI) staying below the 50 midline. The first downside target is the psychological round figure of $2,300 for XAU/USD, with potential further selling pressure pushing it towards $2,260. A bearish breakout below this level could lead to a low of April 1 at $2,228, followed by the $2,200 mark.
On the upside, immediate resistance lies near the May 6 high of $2,232. Further hurdles include the upper boundary of the descending trend channel and the April 26 high in the $2,350–$2,355 range. Beyond that, the $2,400 mark and the all-time high near $2,432 are key levels to watch.
