Noor Trends News, Technical Analysis, Educational Tools and Recommendations
Gold prices have recently surged to historical levels, mainly capitalizing on several factors that have come to the forefront, including its prestigious status as a trusted safe haven. In this article, we’ll delve into these elements and explore their impact on the precious metal’s bullish trajectory.
The Federal Reserve’s decisions, including interest rate adjustments and asset repurchasing policies, play a pivotal role in influencing the gold market. Notably, the recent statements by Fed Chair Jerome Powell have further fueled the upward trend in gold prices. The interplay between monetary policy and gold remains a critical factor.
Fed, Remarks by Chair Powell
The Federal Reserve’s recent statement highlighted its dual mandate; namely, price stability and maximum employment. Powell’s assessment of risks associated with these mandates over the past year suggests a more balanced outlook. Economic growth is described as robust. Additionally, the Federal Reserve plans to slow down the pace of bond sales starting in June.
Chairman Powell dismissed the possibility of an imminent interest rate hike, emphasizing the need for compelling evidence that their policy isn’t already sufficiently restrictive. He also hinted at potential economic pathways that could allow for rate reductions, rather than increases. These statements have resonated positively in the markets, benefiting gold and other risk-linked assets.
“I think we need convincing evidence that our policy is not strict enough, and I do not think we have such evidence”, Powell added.
“I believe that there are economic paths through which we can reduce interest rates,” ruling out that the American economy is close to a stage of stagflation. He also stressed that “tight monetary policy is doing what it should do”, Powell continued.
These statements were a source of relief to the markets and continue to provide the markets with a dose of optimism that pushes the US dollar down in favor of gold, US stocks and other risk-linked assets.
US Dollar, Jobs Data
Gold is taking advantage of the weakness of the US dollar since the beginning of daily trading on Monday to achieve more gains after the US currency lost much of its value against major currencies due to the deterioration of US employment data issued last Friday.
Spot gold contracts rose to $2,333 per ounce, compared to the previous daily close, which recorded $2,308 per ounce. The precious metal fell to its lowest level on the first trading day of the new week at $2,308, compared to the lowest level of $2,341.
The US dollar has continued to decline since the beginning of Monday’s trading, affected by employment data that showed last Friday a decline in both job growth and wage growth in the United States.
The dollar index, which measures the performance of the US currency against a basket of major currencies, fell to 105.00 points compared to the last daily close, which recorded 105.03 points. The index rose to its highest level on the current trading day at 105.20 points, compared to the lowest level, which recorded 104.87 points.
The NFP data indicated a rise of 175,000 jobs last April, compared to the previous reading, which recorded 315,000 jobs, which was higher than market expectations, which indicated a rise to 243,000 jobs.
Wage growth in the United States declined, which is constant in the annual reading of the average hourly earnings index, which recorded 3.9% last April, compared to the previous reading, which recorded 4.1%, which was less than expectations that indicated 4.00%.
The US unemployment rate rose to 3.9% last April compared to the previous reading of 3.8%, indicating levels higher than market expectations of 3.8%.
As labour market conditions deteriorated, speculation crept into the markets that the Federal Reserve might reconsider and begin cutting interest rates next June, which would lead to further deterioration of the US dollar.
China, Central Bank Gold Purchases
Gold prices reached their highest level ever this late last April, driven by increased purchases of the precious metal by central banks seeking a safe haven with the aim of hedging against market fluctuations resulting from escalating geopolitical tensions in the Middle East. Chinese efforts in this direction also aim to diversify foreign exchange reserves and reduce dependence on the US dollar.
Gold’s Future Outlook:
There is a state of optimism in the markets regarding the future path of the precious metal due to the availability of many factors and incentives available in the markets, most notably in the recent period the noticeable increase in the levels of gold reserves purchased by central banks around the world. There are expectations of further rise in the coming period, which means the extension of the strong upward wave to unprecedented levels that astonished the markets. It is quite interesting that the current rise comes in the face of major challenges represented by strong incentives for the decline, most notably the strength that the US dollar enjoys at the current stage.
Central banks’ purchases of gold have recently witnessed a significant increase, seeking a safe haven and a hedge against market fluctuations amid severe tensions that continue to escalate in the Middle East region.
China added 160,000 ounces to the strategic reserve of gold – as part of moves to diversify foreign exchange reserves – last March, which highlights the increase for the seventeenth consecutive month in Chinese gold reserves, which comes amid a state of weakness that dominates the performance of the Chinese yuan, which… Its position as the world’s second largest reserve currency was weakened by this decline.
Middle East Tensions:
In addition, there are the tensions in the Middle East and the positive impact they have on global gold prices. These tensions are escalating coinciding with the launch of Israeli military operations in the city of Rafah, where more than a million Palestinian residents of Gaza have been displaced since the outbreak of war in the Strip.
