In the early European session on Wednesday, the Gold price (XAU/USD) exhibited limited movement within a narrow trading band, consolidating recent robust gains close to its all-time peak. Market participants displayed caution, opting to await further cues on the Federal Reserve’s (Fed) rate-cut trajectory before making fresh directional decisions. The focal point remains Federal Reserve Chair Jerome Powell’s congressional testimony, anticipated to significantly impact short-term dynamics of the US Dollar (USD) and provide a new directional impetus for the non-yielding precious metal.
Traders are closely monitoring Powell’s testimony as they navigate through Wednesday’s release of the US ADP report on private-sector employment and JOLTS Job Openings data during the early North American session. The prevailing sentiment revolves around the growing consensus that the Federal Reserve will initiate interest rate cuts in June, supported by Tuesday’s underwhelming US macroeconomic data. This narrative keeps USD bulls on the defensive, contributing to the positive momentum for Gold. Additionally, geopolitical tensions and concerns about China’s economic slowdown act as factors curbing downside risks for the safe-haven XAU/USD.
Gold Price Remains Firm on Fed Rate Cut Speculations and Risk-Averse Sentiment
Tuesday’s release of weaker US economic data reinforced expectations that the Federal Reserve is inclined to implement interest rate cuts in the near future, prompting a resurgence in the Gold price, approaching its all-time high.
The Institute for Supply Management (ISM) reported a slower expansion in economic activity in the services sector for February, marking the 14th consecutive month of growth but with a decline in employment.
Separately, data from the US Commerce Department’s Census Bureau revealed a 3.6% month-on-month (MoM) decline (-2.0% year-on-year) in total Factory Orders for January, following a 0.3% dip in the previous month.
Amidst persistent geopolitical tensions and China’s economic challenges, investors showed a preference for safe-haven assets, contributing to the upward trajectory of the precious metal.
Traders, however, chose to lighten their positions ahead of Fed Chair Jerome Powell’s testimony, which is anticipated to provide clarity on the interest rate path and serve as a catalyst for Gold.
According to the CME Group’s FedWatch tool, the market is pricing in a 70% chance of the Fed initiating rate cuts by June, keeping USD bulls in check and limiting downside risks for Gold.
Technical Analysis: Overbought Conditions Signal Caution for Bullish Traders
From a technical standpoint, the Relative Strength Index (RSI) on the daily chart indicates overbought conditions, urging caution among bullish traders. Prudence suggests waiting for a near-term consolidation or a modest pullback before considering further appreciation in Gold’s price.
A corrective slide is expected to find support near the $2,100 round figure, with further declines viewed as potential buying opportunities, limited around the $2,064-2,062 strong horizontal resistance breakpoint. A decisive break below this level could shift the near-term bias in favor of bearish traders.
Conversely, resistance is anticipated around the $2,142-2,144 region, representing the all-time peak retested on Tuesday. Overcoming this level may pave the way for a sustained move towards uncharted territory, potentially targeting the psychological $2,200 mark.
