The price of gold (XAU/USD) fluctuates in the European session on Thursday, May 9th in the absence of high-level economic data that can act as catalysts for the precious metal.
According to various analyses, however, multiple obstacles, such as rise of the US dollar (USD) and the Fed’s hawkish comments could limit bullion upside in the near term.
As of this writing, spot gold is trading just above $2,300 an ounce and gold futures are trading at $2,314.
Gold traders await new and more compelling drivers to see sustained gain. In the early afternoon, the US weekly on initial unemployment claims will be published, which could offer a starting point, especially in connection with the US central bank’s moves on rates. Additionally, San Francisco Fed President Mary Daly, a member of the US central bank’s so-called dovish wing, will speak later in the day. The officials’ dovish remarks could limit the price’s decline price of gold for the moment.
The Fed factor may hit the price of gold
Concerns about when the Federal Reserve could lower interest rates are among the most relevant for investors interested in bullion.
Market participants are currently pricing in a greater than 90% chance that the Fed will keep rates stable at its June meeting, according to the CME’s FedWatch Tool, with a 44% chance that the first rate cut will take place in November. The latest aggressive statements by Fed officials on interest rate cuts have slowed down the metal’s run, with Susan Collins, for example, fearing the real possibility of having to keep rates at current levels for longer than previously thought, given recent upward inflation surprises.
Rising Treasury yields and US dollar rates supported by this delay in lowering the cost of money are one reason for the decline in gold (or at least the brake on its rise). The greenback index – which measures its value against a basket of six other currencies – has risen 4% this year and 10% since the start of 2022.
Against this backdrop, investors are now awaiting consumer confidence data from the University of Michigan on Friday and comments from a number of Fed officials this week. Data on the US consumer price index will be released on May 15. After recent weak U.S. jobs numbers, money markets are pricing in two Fed rate cuts this year and about 40 basis points of monetary easing.
If the US central bank finds fertile ground to ease monetary policy, lower interest rates reduce the opportunity cost of holding unprofitable bullion and the price of gold may rise.
The price of gold also driven by China and geopolitics
Anuj Gupta of HDFC Securities stressed that one needs to remain vigilant on breaking news Iran-Israel and their potential effect on the price of gold.
Any further escalation of tension between the two nations could trigger a new one momentum in the bullion market. Tension in the Middle East eased after the United States suspended shipments of bombs to Israel due to concerns about a potential military offensive on the city of Rafah. However, a deterioration in the tense relations of various players in the region may push traders towards gold as a safe haven asset.
Then there’s the factor China. The dragon continued to be a big buyer of gold, with data this week showing that the country’s central bank, the People’s Bank of China (PBoC), bought 60,000 troy ounces of gold in April. It was the 18th consecutive month that the PBoC increased its inventories.
The World Gold Council (WGC) reported last week that central banks have significantly increased their reserves, with net demand of 289.7 tonnes in the first quarter, “the strongest start to any year on record”. The WGC said the three largest buyers are China, Türkiye and India.
