Bears on the dollar are celebrating, taking profits from numerous short positions. The dollar has collapsed over the last five trading sessions, and on Wednesday, its decline accelerated. Today, it continues to fall, accompanied by a decrease in the yields of U.S. government bonds.
Markets are anticipating another speech by Federal Reserve Chairman Jerome Powell today. Regarding the outlook for monetary policy, Powell mentioned on Wednesday that the commencement of rate cuts would be determined by incoming data. He conveyed that they were observing sustained economic growth that was expected to persist, and he added that there is no reason to believe that the economy is in a recession or faces significant recession risk in the near future.
Despite the practically neutral rhetoric of Powell's statements and warnings from other Fed officials about excessive expectations regarding the easing of U.S. monetary policy, many investors are pricing in 2 (or even 3) interest rate cuts by the Fed this year.
In connection with this, gold quotes behave characteristically, breaking the $2160.00 mark per troy ounce. The XAU/USD pair, in the meantime, surpassed the $2161.00 mark today.
Gold does not bring investment returns. However, its quotes are extremely sensitive to changes in the parameters of the monetary policies of global central banks, primarily the Fed. In the event of a Fed interest rate cut, gold usually appreciates. In the current situation, expectations of a possible early start to the Fed's monetary policy easing cycle have already led to massive purchases of this precious metal, which is also receiving additional support amid economic and geopolitical uncertainty in the world, upcoming elections in the USA, and still high inflation.
At the same time, this record price increase, where the price rose by 5.8% in just a few trading days, caught many analysts and gold market experts by surprise. Now, many market participants are wondering how far this can go.
Weak U.S. economic data, market nervousness, geopolitical tension, and central bank gold purchases are forcing investors to seek refuge in defensive assets, primarily gold, avoiding the increasingly unreliable dollar.
At the same time, some economists believe that the rise in the price of gold has gone too far, and in the short term, the likelihood of a correction is growing. The expected U.S. labor market data on Friday, followed by fresh inflation data on Tuesday, can significantly reduce or even undermine hopes for Fed rate cuts this year if both exceed market expectations.
In this regard, the zone near the levels of $2160.00 and $2170.00 may become an insurmountable obstacle for the XAU/USD pair.
At least, the Stochastic on the daily, weekly, and monthly charts is in the overbought zone, also signaling the possibility of a downward correction.