Gold Struggles to Capitalize on Monday’s Rebound
Gold, one of the most sought-after precious metals, has struggled to gain in recent trading sessions. On Monday, the price of gold might recover, following a brief rebound from $1,807-$1,805. However, any optimism was quickly dampened as fresh supply emerged early on Tuesday, resulting in the precious metal struggling to capitalize on the previous day’s gains.
The XAU/USD (gold-dollar) currency pair remains depressed through the early European session and is currently hovering just above $1810, down 0.3%. This lackluster performance indicates the broader downward trend that has recently characterized the gold market.
Investors and analysts are eyeing the price of gold as it is often seen as a barometer of economic stability and a hedge against inflation. However, while gold has traditionally been viewed as a haven asset, current market conditions have been anything but stable, which has harmed the precious metal’s value.
USD in Demand as Investors Await Fed’s Further Monetary Tightening
After experiencing a modest pushback on Monday, the US dollar is again in demand as investors eagerly await further monetary tightening by the US Federal Reserve (FED). This anticipated move is a key factor exerting upward pressure on the USD currency pair, as investors are positive that the tightening measures will strengthen the dollar.
However, despite the optimism surrounding the potential monetary tightening, the market still needs to be convinced that the FED will follow through with its hawkish stance. This skepticism is largely due to the persistent inflationary pressures weighing on the US economy in recent months.
Lift in Bets Following PCE Data US Prompts Caution Among Investors
Recent data from the US, specifically the Personal Consumption Expenditures (PCE) data, has caused a lift in investor bets. In addition, the data revealed that inflation is not easing as quickly as the US Federal Reserve (FED) had expected, prompting several policymakers to consider raising interest rates.
This shift towards tightening monetary policy has resulted in high treasury bond yields, attracting investors away from haven assets such as gold, which offer historically low yields. The resulting flow of capital towards treasury bonds has helped drive up the USD currency pair.
In addition to inflationary concerns, investors are also wary of the economic challenges posed by rising borrowing costs. These concerns and ongoing geopolitical tensions have further tempered investor optimism in equity markets, supporting the USD currency pair.
While the prospect of rising interest rates may be positive for the value of the US dollar, the potential for increased borrowing costs could pose significant challenges for businesses and individuals alike. Moreover, the resulting economic headwinds may dampen overall market sentiment, making it more difficult for equity markets to sustain significant upward momentum.
Analysts Expect XAU/USD to Dip Even Lower in Favorable Market Conditions
The current market conditions favor the US dollar and the XAU/USD currency pair sellers. As a result, analysts expect the pair’s price to dip even lower from its current level of $1810, potentially testing the 100-day moving average (DMA).
The pair’s immediate support is at the $1,792 region, the simple moving average (SMA), and could act as a pivot point for the pair. However, if this support is broken, it may set the stage for deeper losses, potentially driving the pair even lower.