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Risk Aversion and a Strong USD Cause Gold to Retrace After Reaching an All-Time High Above $2,400

Leon Kramer

ByLeon Kramer

Apr 13, 2024
Risk Aversion and a Strong USD Cause Gold to Retrace After Reaching an All-Time High Above $2,400

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  • Gold hit an all-time high of $2,431 before experiencing a slight decline due to the strengthening US Dollar and decreased worries about inflation.
  • Geopolitical tensions between Iran and Israel have ignited market volatility, leading to an initial surge in demand for safe havens.
  • Statements from Federal Reserve officials lift the US dollar, creating a challenge for gold prices.

The price of Gold ended the week with slight increases of 0.59% following a record-breaking surge during Friday’s North American session. The price movement experienced significant fluctuations due to geopolitical uncertainties, leading investors to seek refuge in safe-haven assets.

This caused the non-yielding metal to surge to an unprecedented level of $2,431, only to later decline due to the overall strength of the US Dollar. Currently, the XAU/USD is being traded at $2,343, experiencing a decline of 1.18%.

As per reports from various sources, Iran is making preparations for an assault on Israeli territory in response to an Israeli strike that resulted in the deaths of seven Iranian officials a fortnight ago.

In addition, the most recent inflation data from the United States, released on Wednesday and Thursday, caused significant fluctuations in the price of the precious metal. The unyielding metal dropped to $2,303 after the release of the US Consumer Price Index (CPI).

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Nevertheless, the decline was temporary as inflationary pressures subsided after the release of the Producer Price Index (PPI) report, which came in below market expectations and some of the figures from February.

Officials from the Federal Reserve are currently sharing updates through various news outlets. Leading the discussions are Boston Fed President Susan Collins, Chicago Fed President Austan Goolsbee, and the Kansas City Fed’s Jeffrey Schmid. Their comments are mostly dampening expectations for a rate cut.

Gold Prices Fall as a Result of Pessimistic Sentiment Regarding the Strength of the US Dollar

  • The preliminary Consumer Sentiment Index for April, as reported by the University of Michigan, declined to 59.7, lower than the anticipated 79.0. In addition, there has been an uptick in short-term inflation expectations for the upcoming year, with the projected rate now standing at 3.1%, surpassing the previously expected rate of 2.9%. Expectations for long-term inflation, projected five years into the future, also increased, shifting from 2.8% to 3.0%.
  • Varied inflationary data released in the United States (US) led investors to adjust their expectations of the Fed’s potential interest rate reductions. According to data from the Chicago Board of Trade (CBOT), futures traders are anticipating only two reductions to the fed funds rate. Their projections indicate that the primary reference rate will likely settle at 4.915% by the end of the year.
  • The US Dollar Index (DXY) also experienced a significant surge, skyrocketing by more than 0.64% to achieve a fresh year-to-date peak of 106.10.
  • Boston Fed President Susan Collins mentioned a potential delay in the first rate cut but also expressed her anticipation of reducing rates twice instead of three times.
  • Austan Goolsbee of the Chicago Fed expressed concern about the elevated inflation readings, stating that they are higher than desired. He also mentioned that the instability in the Middle East poses significant uncertainty for the Fed, particularly in relation to oil prices and gas. Goolsbee emphasized that a negative supply shock would have detrimental effects.
  • Jeffrey Schmid of the Kansas City Fed highlighted the suitability of the current US monetary policy, considering the consistently stubborn inflation levels. He emphasized the importance of being patient with interest rates, suggesting a careful approach until it becomes clear that inflation is moving closer to the desired 2% target.
  • The World Gold Consortium has disclosed that the People’s Bank of China emerged as the top purchaser of Gold in February, boosting its reserves by 12 tonnes to a total of 2,257 tonnes.

Gold’s Rallies Come To a Halt as the XAU/USD Pair Falls Below $2,400

Gold’s upward trajectory is poised to persist, even as it experiences a slight decline towards the $2,350 range, following its remarkable surge to an unprecedented peak surpassing $2,400.

If sellers manage to drive prices below $2,350, the next level of support would be the low of $2,319 on April 10 and then the daily low of $2,303 on April 8. After being cleared, the subsequent level of support would be the 21-session high of $2,222 reached in March. Additional declines are observed at $2,200.

Looking ahead, anticipate additional gains above $2,400, with the next level of resistance observed at $2,431, followed by $2,450. Our next target is to achieve a sum of $2,500.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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