A red-hot inflation report in the United States and rising tensions between the latter and Iran pushed Gold price higher on Friday, past the $5,260 figure, posting solid gains of over 1.20%. At the time of writing, XAU/USD trades at $5,261, hitting a one-month high and extending its gains for the seventh consecutive month.
XAU/USD climbs to fresh highs as unresolved US–Iran talks and inflation fears underpin safe-haven buying
Talks between Washington and Tehran ended on Thursday, but failed to show meaningful progress, which could prevent a US strike on Iran. Recently, US President Donald Trump said that he was not happy with the way Iran negotiated, sounding vague about whether there may or may not be a regime change in the country, and added that Tehran forgot to say the golden words, “no nuclear weapon.”
The US Embassy in Jerusalem permitted non-emergency staff and families to leave the country, citing safety risks, according to NBC News. Meanwhile, CNN reported that no intel shows Iran is planning an intercontinental ballistic missile able to hit the US.
Data-wise, the US Producer Price Index in January rose by 2.9% YoY, beneath the previous month’s 3% but exceeded forecasts of 2.6%. Core PPI, which excludes food and energy, increased on an annual basis by 3.6%, up from the previous month’s print and estimates of 3.3% and 3%, respectively.
Although market participants are pricing in nearly 58 basis points of easing, the first rate cut is expected to be delayed until the Fed’s July 29 meeting, with traders implying 29 basis points of easing.
What is on the calendar for the first week of March?
Ahead next week, the US economic docket will feature the ISM Manufacturing and Services PMI, the ADP Employment Change for February, Initial Jobless Claims, Retail Sales and February’s Nonfarm Payrolls data.
XAU/USD Technical outlook: Gold surges as bulls eye $5,300
Despite continuing its advance, Gold price seems poised to consolidate and forget about parabolic upward moves. As XAU/USD clears $5,200, the next area of consolidation lies within the latter and $5,300, with expectations of higher prices.
The Relative Strength Index (RSI) shows that bullish momentum is building, which opens the door to higher prices.
The first resistance is seen at $5,300. A decisive break puts the move towards $5,400 in play, followed by the January 30 high at $5,450. On further strength, $5,500 is up next ahead of the record high near $5,600.
Conversely, if Gold drops, the first support would be the February 24 daily low of $5,093. Once cleared, the next stop would be the 20-day Simple Moving Average (SMA) at $5,019 before testing $5,000.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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