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Gold price extends its steady intraday descent to $2,360 area, bullish potential seems intact

Gold price extends its steady intraday descent to $2,360 area, bullish potential seems intact

By Haresh Menghani

  • Gold price drifts lower on Monday amid hopes that the Iran-Israel conflict will not escalate further.
  • Reduced Fed rate cut bets are keeping the US bond yields elevated and also exert pressure on the metal.
  • The fundamental backdrop warrants caution before positioning for any further depreciating move.

Gold price (XAU/USD) comes under some selling pressure on the first day of a new week and drops to a multi-day low, around the $2,360 area heading into the European session. Investors turned optimistic in the wake of hopes for an Iran-Israel conflict de-escalation, which is evident from a generally positive tone around the equity markets. Apart from this, the underlying bullish sentiment surrounding the US Dollar (USD), bolstered by hawkish Federal Reserve (Fed) expectations, turn out to be key factor driving flow away from the safe-haven precious metal.

That said, speculations that major central banks will cut interest rates this year should act as a tailwind for the non-yielding Gold price. This, along with worsening global economic conditions, should contribute to limiting the downside for XAU/USD and warrants some caution before positioning for any further depreciating move. Traders might also prefer to wait on the sidelines ahead of this week’s release of the flash global PMIs on Tuesday and important US macro data – the Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index on Thursday and Friday, respectively. 

Daily Digest Market Movers: Gold price is undermined by easing geopolitical risks, hawkish Fed expectations

  • Iran signaled that it has no plans to retaliate against the Israeli limited-scale missiles strike on Friday, easing fears about a further escalation of geopolitical tensions in the Middle East and undermining the safe-haven Gold price. 
  • Investors have pushed back their expectations about the timing of the first interest rate cut by the Federal Reserve to September and also downsized bets for the number of rate cuts in 2024 to two, or around 40 basis points.
  • Chicago Fed President Austan Goolsbee argued on Friday that progress on US inflation has stalled this year and that it would make sense to wait to get more clarity on the inflation outlook before taking a policy step.
  • The yield on the benchmark 10-year US government bond stands tall near a multi-month peak, which, in turn, is seen acting as a tailwind for the US Dollar and exerting additional pressure on the non-yielding yellow metal.
  • Concerns about slowing global economic growth support prospects for synchronized interest-rate cuts by most major central banks in the second half of this year, which, in turn, could lend support to the XAU/USD.
  • Traders might also wait for this week’s release of flash global PMI prints, the Advance US Q1 GDP report, and the US Personal Consumption Expenditures (PCE) Price Index before placing fresh directional bets.

Technical Analysis: Gold price slides back closer to short-term trading range support, $2,360 level holds the key

From a technical perspective, the range-bound price action witnessed over the past week or so constitutes the formation of a rectangle on short-term charts. Against the backdrop of the recent blowout rally, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart have eased from the overbought territory and suggest that the path of least resistance for the Gold price is to the upside. That said, bulls might wait for sustained strength and acceptance above the $2,400 mark – representing the top end of the trading range – before positioning for any further gains. 

On the flip side, the lower boundary of the aforementioned range, around the $2,364-2,363 region, is likely to protect the immediate downside and act as a key pivotal point. A convincing break below might prompt some technical selling and drag the Gold price to the $2,325-2,322 area en route to the $2,300 round figure.

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