Gold price consolidates below one-month top, downside potential seems limited

Gold price remains well supported by bets for an imminent Fed rate cut later this year.
The prevalent risk-on environment keeps a lid on any further gains for the XAU/USD.
Thursday’s sustained breakout through the $2,040-2,042 hurdle favours bullish traders.

Gold price (XAU/USD) struggles to capitalize on the previous day’s positive move beyond the $2,040-2,042 horizontal barrier and oscillates in a narrow band during the Asian session on Friday. The precious metal, meanwhile, remains within the striking distance of a nearly one-month top touched on Thursday and draws support from a modest US Dollar (USD) downtick. The US Personal Consumption Expenditures (PCE) Price Index released on Thursday showed that annual inflation in January was the lowest in three years and opens the door for an eventual interest rate cut by the Federal Reserve (Fed). This, in turn, fails to assist the USD to build on the overnight bounce from the vicinity of the weekly low and turns out to be a key factor acting as a tailwind for the precious metal.

That said, the recent comments by several influential FOMC members suggest that the US central bank was in no hurry and will wait until the June policy meeting before cutting interest rates. The hawkish outlook remains supportive of elevated US Treasury bond yields, which could limit any meaningful USD downside and cap the upside for the non-yielding Gold price. Apart from this, the prevalent risk-on mood – as depicted by an extended rally across the global equity markets – further holds back traders from placing fresh bullish bets around the safe-haven XAU/USD. This warrants some caution before positioning for any further appreciating move. 

Daily Digest Market Movers: Gold price remains confined in a range amid mixed fundamental cues

The US inflation data came in line with market expectations, suggesting that the Federal Reserve is going to stay on track to cut interest rates later this year and lending some support to the Gold price.
The Core US PCE Price Index – the Fed’s preferred inflation gauge that excludes food and energy prices – climbed 0.4% in January and the yearly rate eased to 2.4% from 2.6% in the previous month.
Meanwhile, the CME Group’s FedWatch Tool indicates that markets are still pricing in the possibility of the first interest rate cut in June and the bets were reaffirmed by comments by several Fed officials.
Atlanta Fed President Raphael Bostic said that the speed at which US inflation is easing means it will likely be appropriate for the US central bank to start cutting interest rates during the summertime.
San Francisco Fed President Mary Daly said central bank officials are ready to lower interest rates as needed but emphasized there is no urgent need to do so given the strength of the US economy.
Cleveland Fed President Loretta Mester said the recent inflation data suggests that policymakers have more work to do to cool price pressures but didn’t change her view for three rate cuts this year.
New York Fed President John Williams reiterated that the next move for the US central bank is likely to be cut to its interest rate target, though noted there is no sense of urgency to do that.
The US Treasury bond yields aren’t far from their recent highs, which, along with an extension of the risk-on rally across the global equity markets, keeps a lid on further gains for the safe-haven XAU/USD.

Technical analysis: Gold price remains on track to end the week on a positive note, bullish bias remains

From a technical perspective, the overnight breakout through the $2,040-2,042 horizontal resistance was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and support prospects for an extension of the recent goodish rebound from the YTD low, around the $1,984 region touched in February. Hence, a subsequent strength towards the next relevant hurdle near the $2,065 region, en route to the $2,100 round figure, looks like a distinct possibility.

On the flip side, weakness back below the $2,040-2,042 resistance-turned-support might now be seen as a buying opportunity and is more likely to find decent support near the $2,025-2,024 area, or the weekly low. This is followed by the 100-day Simple Moving Average (SMA), currently near the $2,014 region. This is followed by the $2,000 psychological mark, which if broken might shift the near-term bias in favour of bearish traders and drag the Gold price to the $1,984 support en route to the very important 200-day SMA, near the $1,969-1,968 zone.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
-0.14%
-0.06%
-0.07%
-0.20%
0.17%
-0.18%
-0.05%

EUR
0.13%
 
0.07%
0.05%
-0.06%
0.31%
-0.05%
0.09%

GBP
0.06%
-0.07%
 
-0.04%
-0.13%
0.24%
-0.12%
0.01%

CAD
0.09%
-0.03%
0.04%
 
-0.09%
0.28%
-0.08%
0.04%

AUD
0.20%
0.06%
0.13%
0.11%
 
0.37%
0.02%
0.15%

JPY
-0.16%
-0.31%
-0.23%
-0.26%
-0.36%
 
-0.34%
-0.22%

NZD
0.16%
0.02%
0.11%
0.09%
-0.04%
0.34%
 
0.11%

CHF
0.04%
-0.08%
0.00%
-0.05%
-0.13%
0.24%
-0.12%
 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

US Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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