Gold benefits from geopolitical risks, reduced Fed rate cut bets might cap gains

• Gold price attracts fresh buyers on Thursday following the previous day’s US CPI-inspired downfall. 
• Geopolitical risks benefit the safe-haven XAU/USD amid a modest USD pullback from the YTD peak.
• Reduced bets for an early interest rate cut by the Fed might cap gains amid overbought conditions.

Gold price (XAU/USD) regains positive traction during the Asian session on Thursday and reverses a part of the previous day’s post-US CPI downfall from the all-time peak. Persistent geopolitical tensions stemming from the risk of a further escalation of conflicts in the Middle East weigh on investors’ sentiment and turn out to be a key factor driving some haven flows towards the precious metal. The global flight to safety, meanwhile, triggers a modest pullback in the US Treasury bond yields, which drags the US Dollar (USD) away from the YTD peak and lends additional support to the commodity.

Any meaningful downside for the US bond yields and the USD, however, seems limited amid firming expectations that the Federal Reserve (Fed) may delay cutting interest rates, bolstered by hotter-than-expected US consumer inflation figures. Apart from this, overbought conditions on the daily chart might hold back traders from placing fresh bullish bets around the non-yielding Gold price. Market participants now look to the US Producer Price Index (PPI) and speeches by influential FOMC members, which might influence the USD price dynamics and provide some impetus to the precious metal. 

Daily Digest Market Movers: Gold price is underpinned by geopolitical tension and modest USD downtick

• The US Dollar strengthened across the board amid a surge in the US Treasury bond yields in response to a robust inflation report and exerted downward pressure on the Gold price on Wednesday.
• The US Bureau of Labor Statistics (BLS) reported the headline Consumer Price Index (CPI) climbed 3.5% on a year-on-year basis and 0.4% compared with the previous month, surpassing expectations.
• Excluding volatile food and energy components, the core CPI accelerated to the 3.8% YoY rate, also beating estimates and stoking worries that the Federal Reserve may keep rates higher for longer.
• The minutes from the March FOMC meeting revealed that policymakers wouldn’t be cutting rates until they gained greater confidence that inflation was on a steady path back to the 2% annual target.
• The markets were quick to react and pushed back the expected timing of a first interest rate cut by the Fed to September from June and the number of 25 basis points cuts this year to under two.
• The yield on the rate-sensitive two-year US government bond and the benchmark 10-year Treasury note spiked to their highest level since November last year, pushing the USD to a fresh YTD peak.
• Ceasefire talks between Israel and Hamas have yielded no agreement, which, along with a possible Iranian retaliation over a suspected Israeli strike on its embassy in Syria, weigh on investors’ sentiment.

Technical Analysis: Gold price bulls might refrain from positioning for further gains amid overbought RSI

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and warrants some caution before placing fresh bullish bets around the Gold price. Hence, any subsequent move-up is likely to face stiff resistance around the $2,365-2,366 area, or the record high touched earlier this week. Some follow-through buying, however, should pave the way for a further near-term appreciation towards the $2,400 round figure mark.

On the flip side, the overnight swing low, around the $2,319 area, now seems to protect the immediate downside ahead of the weekly trough, around the $2,302 region. A convincing break below the latter might prompt some technical selling and drag the Gold price further towards the $2,267-2,265 horizontal support, which should now act as a key pivotal point for short-term traders.