Gold prices sit close to record highs; more rate cues awaited

Gold price advances back closer to weekly top, upside potential seems limited

  • Gold price attracts some haven flows in the wake of geopolitical tensions in the Middle East.
  • Hawkish FOMC minutes remain supportive of elevated US bond yields and cap further gains.
  • A sustained move beyond the 50-day SMA should pave the way for additional near-term upside.

Gold price (XAU/USD) edges higher during the Asian session on Thursday, albeit remains below the 50-day Simple Moving Average (SMA) pivotal resistance, around the $2,032 area, or over a one-week high touched the previous day. The Middle East conflict continues to underpin demand for traditional safe-haven assets, which, along with a weaker US Dollar (USD), acts as a tailwind for the precious metal. The uptick, however, lacks bullish conviction in the wake of firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer.

The bets were reaffirmed by hawkish FOMC meeting minutes released on Wednesday, which showed that policymakers were concerned about cutting interest rates too quickly. This, along with a weak 20-year bond auction, triggered a sell-off in the US debt market and pushed the yield on long-term US government bonds to their highest level in almost three months. This might hold back traders from placing aggressive bullish bets around the non-yielding Gold price and cap the upside, warranting caution before positioning for an extension of a one-week-old uptrend.

Daily Digest Market Movers: Gold price draws support from raging conflict in the Middle East

  • The recent attacks by Yemen’s Houthi rebels on commercial vessels in the Red Sea and Bab al-Mandab strait stoke worries about a further escalation of military action in the Middle East, underpinning the safe-haven Gold price.
  • The US Central Command said two anti-ship ballistic missiles were launched from the Iranian-backed Houthi terrorist group, which claims to support Palestinian civilians amid Israel’s retaliatory military campaign in the Gaza Strip.
  • Fighting between Israel and Hamas has shown no sign of abating despite diplomatic efforts by several countries, with the former warning of a potential ground invasion of Rafah where more than 1.5 million Palestinians are sheltering.
  • The US Dollar languishes near its lowest level in more than two weeks and lends additional support to the precious metal, though hawkish-sounding FOMC meeting minutes keep a lid on any meaningful appreciating move.
  • The January FOMC meeting minutes revealed that policymakers agreed that they needed greater confidence in falling inflation before considering cutting rates and reinforced expectations that the Fed will keep rates higher for longer.
  • Market participants pushed back expectations on when the Fed will begin cutting rates to June, which, along with a weaker 20-year bond auction, push the yield on long-term US Treasury bonds higher across the board.
  • The yield on the benchmark 10-year US government bond advanced to its highest level since November 30, which helps limit the downside for the Greenback and contributes to capping the non-yielding yellow metal.
  • Traders now look to the US economic docket – featuring the usual Weekly Initial Jobless Claims, the flash PMI prints and Existing Home Sales data – for some impetus ahead of Fed Governor Philip Jefferson’s speech.

Technical Analysis: Gold price might struggle to make it through 50-day SMA pivotal hurdle

From a technical perspective, bulls need to wait for sustained strength and acceptance above the 50-day SMA before positioning for any further gains. With oscillators on the daily chart just starting to gain positive traction, the Gold price might then accelerate the momentum towards an intermediate hurdle near the $2,044-2,045 region en route to the $2,065 supply zone.

On the flip side, the $2,020 area now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near just below the $2,000 psychological mark. Some follow-through selling will expose the monthly low, around the $1,984 region, before the Gold price eventually drops to challenge the very important 200-day SMA support near the $1,966-1,965 zone.