Gold price draws support from softer risk tone and modest USD downtick ahead of US data

Gold price catches fresh bids on Thursday and reverses a major part of the overnight losses.
Dovish Fed expectations keep the USD bulls on the defensive and lend support to the metal.
A softer risk tone further benefits the safe-haven XAU/USD ahead of the US macro releases.

Gold price (XAU/USD) regains positive traction on Thursday and reverses a major part of the previous day’s decline from the vicinity of the weekly top. The precious metal, however, remains confined in a familiar trading band held over the past week or so as traders await a fresh catalyst before positioning for the next leg of a directional move. Hence, the focus will remain glued to the release of the US Core Personal Consumption Expenditure (PCE) Price Index on Friday, which might influence the Federal Reserve’s (Fed) future policy decision. This, in turn, should help determine the near-term trajectory for the non-yielding commodity.

In the meantime, growing acceptance that the US central bank will pivot away from its hawkish stance early next year continues to undermine the US Dollar (USD) and lends some support to the Gold price. In fact, the current market pricing indicates a greater chance that the Fed will start cutting interest rates as early as March 2024. This is reinforced by the recent slump in the US Treasury bond yields to a multi-month low. Apart from this, a softer risk tone is seen benefitting the safe-haven XAU/USD ahead of the US macro data – the final Q3 GDP print, Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index due later during the North American session. 

Daily Digest Market Movers: Gold price remains confined in a familiar range ahead of US macro data

Rising bets that the Federal Reserve will eventually pivot away from its hawkish stance early next year turn out to be a key factor acting as a tailwind for the Gold price.
Dovish Fed expectations drag the yield on the benchmark 10-year US government bond to its lowest level since July and keep the US Dollar bulls on the defensive.
A slew of Fed officials recently tried to push back on the idea of rapid interest rate cuts next year, albeit did little to provide any meaningful impetus to the buck.
The Conference Board’s US Consumer Confidence Index jumped to a five-month high level of 110.7 in December from 101, rising the most since early 2021.
US existing home sales unexpectedly rose by 0.8% in November, to a seasonally adjusted annual rate of 3.82 million units, snapping five straight months of decline.
The overnight dramatic turnaround in the US equity markets is seen as another factor that benefits the safe-haven precious metal and remains supportive of the uptick.
Traders now look forward to the final US GDP print, which is expected to show that the world’s largest economy grew by a 5.2% annualized pace during the third quarter.
Thursday’s US economic docket also features the release of Weekly Initial Jobless Claims data and the Philly Fed Manufacturing Index later during the US session.
The focus, meanwhile, remains on the Core PCE Price Index, due on Friday, which will influence the Fed’s future rate decisions and infuse volatility in the markets.

Technical Analysis: Gold price bulls await a breakout through a short-term trading range 

From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle pattern on short-term charts. This marks a consolidation phase before the next leg of a directional move. Against the backdrop of last week’s post-FOMC rally from the vicinity of the 50-day Simple Moving Average (SMA) and the occurrence of a golden cross, with the 50-day SMA holding above the 200-day SMA, support prospects for an eventual break higher. The constructive setup is reinforced by the fact that oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the upside.

That said, it will still be prudent to wait for a sustained breakout through the $2,047-2,048 region, or the top boundary of the aforementioned trading band, before positioning for any further gains. The XAU/USD might then accelerate the positive move towards the next relevant resistance near the $2,072-2,073. The momentum could get extended further and allow the Gold price to reclaim the $2,100 round figure.

On the flip side, the $2,028 region is likely to protect the immediate downside ahead of the trading range support, near the $2,017 zone. A convincing break below the latter might shift the short-term bias in favour of bearish traders. The subsequent decline could then drag the Gold price to the $2,000 psychological mark. This is closely followed by the 50-day SMA, near the $1,992-1,991 zone, below which the XAU/USD could retest last week’s swing low, around the $1,973 region, and decline further to the 200-day SMA, currently near the $1,957 area.

US Dollar price this week

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

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
-0.49%
0.29%
-0.16%
-0.76%
0.44%
-0.67%
-0.99%

EUR
0.49%
 
0.78%
0.35%
-0.26%
0.94%
-0.18%
-0.50%

GBP
-0.29%
-0.78%
 
-0.45%
-1.05%
0.14%
-0.96%
-1.28%

CAD
0.17%
-0.33%
0.44%
 
-0.60%
0.58%
-0.51%
-0.84%

AUD
0.75%
0.26%
1.04%
0.60%
 
1.17%
0.09%
-0.22%

JPY
-0.46%
-0.93%
-0.16%
-0.58%
-1.22%
 
-1.13%
-1.42%

NZD
0.65%
0.18%
0.95%
0.49%
-0.08%
1.09%
 
-0.33%

CHF
0.98%
0.49%
1.27%
0.83%
0.22%
1.40%
0.32%
 

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).

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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