Gold price is seen consolidating its recent losses to a three-week trough.
Reduced bets for a March Fed rate cut cap the upside for the XAU/USD.
Traders also seem reluctant ahead of the crucial FOMC policy decision.
Gold price (XAU/USD) remains on the defensive during the Asian session on Wednesday and currently trades around the $1,978 region, just above its lowest level since November 20 touched earlier this week. The latest consumer inflation figures released from the United States (US) on Tuesday further dampened the prospects for an early policy easing by the Federal Reserve (Fed). Apart from this, the prevalent risk-on environment, further bolstered by hopes for more stimulus measures from China, is seen as a key factor acting as a headwind for the safe-haven precious metal.
That said, geopolitical risks, along with growing acceptance that the Fed will start easing its monetary policy by the first half of 2024, act as a tailwind for the non-yielding Gold price. Furthermore, the uncertainty over the timing of when the US central bank may begin cutting interest rates keeps the US Dollar (USD) bulls on the defensive, which might further contribute to limiting the downside for the commodity. Traders might also refrain from placing aggressive directional bets and prefer to wait for the outcome of the highly-anticipated two-day FOMC monetary policy meeting.
The Fed is scheduled to announce its decision later during the US session and is expected to maintain the status quo. The market focus, meanwhile, remains glued to the accompanying monetary policy statement and updated economic projections, which include the so-called “dot plot”. This will be followed by Fed Chair Jerome Powell’s post-meeting press conference, which will be scrutinized closely for confirmation of a change in the central bank’s policy stance. The markets are currently pricing in the possibility of at least four 25 basis point (bps) rate cuts by the Fed in 2024. Hence, a dovish pivot will exert heavy pressure on the US Dollar (USD) and trigger a fresh leg up for the non-yielding Gold price.
Daily Digest Market Movers: Gold price struggles to attract any buyers, looks to Fed for fresh impetus
The uncertainty over the Federal Reserve’s near-term policy outlook holds back traders from placing directional bets around the Gold price and leads to subdued range-bound price action.
Data released from the United States on Tuesday showed that consumer prices rose unexpectedly in November, forcing traders to further scale back bets for a rate cut in March.
The US Labor Department reported that the headline Consumer Price Index (CPI) edged up 0.1% in November and the yearly rate ticked down to 3.1% from the 3.2% previous.
The annual Core CPI inflation, which excludes volatile food and energy prices, held steady at 4.0% as forecast and rose 0.1% on a monthly basis, little changed from the previous month.
The November numbers were still well above the Fed’s 2% target and come on top of the stronger-than-expected US jobs report last Friday, pointing to a still resilient economy.
The market focus remains glued to the outcome of the crucial two-day FOMC monetary policy meeting, scheduled to be announced later during the US session this Wednesday.
Investors will look for fresh cues about the timing of when the Fed may start cutting rates in 2024, which, in turn, will drive the US Dollar demand and influence the yellow metal.
Hopes for more stimulus from policymakers in China overshadow the risk of a further escalation of geopolitical tensions in the Middle East and remain supportive of the risk-on mood.
Reporting on the annual Central Economic Work Conference that ended on Tuesday, state media said that China will step up policy adjustments to support economic recovery in 2024.
Yemen’s Iran-backed Houthi rebels issue regulations for navigating through the Red Sea amid the Israel embargo and the warning includes a restriction on travel towards “Occupied Palestinian territories”.
This, however, does little to temper investors’ appetite for perceived riskier assets or dampen the underlying bullish market sentiment and benefit the safe-haven precious metal.
Technical Analysis: Gold price remains on the defensive, bears flirts with 50% Fibo. support
From a technical perspective, the Gold price, so far, has managed to defend the 50% Fibonacci retracement level of the October-December rally to an all-time peak. This is closely followed by the 50-day Simple Moving Average (SMA), currently around the $1,969-1,968 region, below which the XAU/USD could slide to test the very important 200-day SMA, near the $1,953-1,952 area. The next relevant support is pegged near the $1,942-1,938 confluence, comprising the 100-day SMA and the 61.8% Fibo. level, which should act as a key pivot point. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a deeper corrective slide.
On the flip side, any meaningful recovery attempt might continue to attract some sellers near the $2,000 psychological mark and remain capped near the $2,010-2,012 static resistance. Some follow-through buying has the potential to lift the Gold price further towards the $2,030 hurdle en route to the $2,040 supply zone. The subsequent move-up will shift the near-term bias in favour of bullish traders against the backdrop of the occurrence of a golden cross, with the 50-day rising above the 200-day SMA. The XAU/USD might then climb to the $2,071-2,072 region before aiming to reclaim the $2,100 round figure.
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 weakest against the Swiss Franc.
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF
USD
-0.21%
-0.04%
0.07%
0.34%
0.36%
0.15%
-0.46%
EUR
0.21%
0.18%
0.28%
0.55%
0.58%
0.36%
-0.25%
GBP
0.05%
-0.17%
0.11%
0.38%
0.41%
0.19%
-0.42%
CAD
-0.07%
-0.28%
-0.12%
0.26%
0.29%
0.08%
-0.54%
AUD
-0.34%
-0.55%
-0.39%
-0.26%
0.03%
-0.19%
-0.81%
JPY
-0.37%
-0.59%
-0.51%
-0.30%
-0.04%
-0.23%
-0.84%
NZD
-0.16%
-0.37%
-0.19%
-0.08%
0.18%
0.21%
-0.62%
CHF
0.46%
0.25%
0.41%
0.53%
0.80%
0.83%
0.61%
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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