- Gold remains lifted by geopolitical risks amid sharp rise in US Treasury yields.
- Federal Reserve officials emphasize ongoing inflation concerns, hinting at maintaining higher interest rates for longer.
- Strong US labor market data reinforces robust economic backdrop.
Gold prices advanced late in the North American session on Thursday, underpinned by heightened geopolitical risks involving Iran and Israel. Federal Reserve (Fed) officials delivered hawkish messages, triggering a jump in US Treasury yields, which boosted the Greenback.
XAU/USD trades at $2,384, with gains of more than 1%, after hitting a daily low of $2,361. Major central bank speakers are grabbing the spotlight, pushing aside the release of economic data from the United States (US), which paints an optimistic outlook for the labor market.
On Thursday, Fed policymakers crossed the wires. Atlanta Fed’s Raphael Bostic noted that inflation is too high, and the US central bank still has a way to go to tame it. He added the Fed won’t be able to reduce rates. Earlier, New York Fed President John Williams stated that the Fed is data-dependent and emphasized that monetary policy is in a good place, so he wasn’t in a rush to cut rates. His baseline doesn’t consider hiking rates but added that the Fed will hike if needed.
Following Bostic’s remarks and strong data that showed US Initial Jobless Claims remained unchanged compared to the previous reading, the golden metal continued to climb.
Daily digest market movers: Gold shrugs off higher yields, strong US data
- The US Department of Labor revealed that Initial Jobless Claims for the week ending April 13 fell to 212K, below the predicted 215K. Continuing Jobless Claims for the week of April 6 slightly rose to 1.812 million from 1.810 million but were still below the expected 1.818 million.
- The Philadelphia Fed Manufacturing Index increased significantly, jumping to 15.5, far surpassing minimal forecasts of 1.5. US Existing Home Sales declined by 4.3% MoM, falling from 4.38 million to 4.19 million, which was also below the anticipated 4.2 million.
- In the meantime, the CME FedWatch Tool shows the first rate cut could happen in September, with odds for a quarter percentage point cut standing at 66%, down from yesterday’s 71%.
- Despite decent US economic data, market participants seem to be focused on geopolitical risks.
- Tensions in the Middle East subsided after Israeli officials commented that they considered striking Iran on Monday but decided to wait, according to Axios. Jake Sullivan, the White House National Security Advisor, said the US decided to impose new sanctions on Iran in the upcoming days.
- US Dollar Index (DXY), which tracks the buck’s performance against a basket of six other currencies, loses 0.15% to 105.96.
- Gross Domestic Product (GDP) estimates for Q1 2024 show that the US economy is expected to grow 2.9%, up from 2.8% estimated on April 15, according to the Atlanta GDPNow model.
Technical analysis: Gold rises despite RSI in overbought levels
The Gold price remains bullishly biased, and price action of the last couple of trading days appears to form a Bullish Harami chart pattern that reassembles an inside day. That suggests the non-yielding metal could resume its uptrend, even though the Relative Strength Index (RSI) is at overbought levels. That said, buyers need to challenge the $2,400 figure. Once cleared, that could pave the way to test the year-to-date (YTD) high at $2,431.78, ahead of $2,500.
On the other hand, if XAU/USD is headed for a correction, the first support would be the $2,350 mark, followed by the April 15 daily low of $2,324. Once surpassed, Gold might test $2,300.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.