XAUUSD – The precious metal gold had faced strong objection from the bears yesterday after breaking the resistance at $1860 to attain a new all-time-high at $1869. The bulls quickly took profits following the FOMC meeting minutes released yesterday, which pointed to further interest rate hikes in the coming sessions. There was a bearish takeover immediately, which pushed the price of gold down to $1842. Gold is currently in a correction phase. The general sentiment in the market is presently bearish.
What are the major fundamental factors that affect gold?
Dollar Strength
When trading gold, one would soon realise prices often move in the opposite direction to the US dollar because the dollar is usually pegged to gold. To make profits from trading gold, every trader must pay attention to all factors affecting the US dollar, whether positively or negatively, to know which direction to follow on gold.
NFP
The US Non-Farm Payroll report released on the first Friday of every month at 8:30 a.m EST causes high volatility in gold. An increase in the employment rate, which is bullish for the US dollar, affects gold negatively and vice-versa.
Geopolitical Events
Gold is primarily affected by different geopolitical events across multiple countries, especially when it involves those countries that are either large suppliers or buyers of gold. The Russian-Ukraine war, for instance, had primarily affected gold from its outset when investors quickly rushed to gold as a safe haven. Gold is always the investors’ favourite hedging financial instrument in moments of wars and crises.
Inflation
Gold has been viewed as a hedge against inflation. Thus the price of gold is always high when inflation rises. Inflation favours gold so much.
Interest Rate Hikes
Interest rate hikes always favour the US dollar and discount gold. Before gold started recovering again, the Fed’s interest rate hike of 50 basis points sent gold to a new all-time low at $1785. The present diminishing dollar strength is a root cause of gold’s recovery.
Supply & Demand
Gold is a highly sought-after commodity not just for investment purposes but also used to manufacture ornaments such as jewellery, sports medals, religious items, etc. It is also used in producing some electronic and medical devices. This means there is always a high demand for gold. However, gold supply and demand is seasonal. Every trader must pay attention to all the seasons when there is always a high demand. The prices at this point are inversely affected by the number supplied.
It is pivotal that every trader determines how these factors affect each other when trading gold prices. Combining these fundamental factors with technical knowledge lets us know the best support and resistance to place one’s profit target.
