- Gold price drifts lower on Wednesday, back closer to a multi-week low touched on Monday.
- Elevated US bond yields underpin the USD and exert pressure on the non-yielding metal.
- Geopolitical risks and China’s economic woes could limit losses ahead of the US CPI report.
Gold price (XAU/USD) met with some supply following an uptick to the $2,040 area on Tuesday and finally settled with only modest gains on Tuesday. The precious metal extends the descent heading into the European session on Wednesday and has now moved well within the striking distance of a nearly three-week low touched on Monday. Diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) in 2024 remains supportive of elevated US Treasury bond yields. This, in turn, acts as a tailwind for the US Dollar (USD) and drives flows away from the non-yielding yellow metal.
That said, geopolitical risks stemming from the Israel-Hamas war and persistent worries over a slow economic recovery in China – the world’s second-largest economy – should lend some support to the safe-haven Gold price. Traders might also refrain from placing fresh directional bets and prefer to wait for the release of the latest Consumer inflation figures from the United States (US) on Thursday. The crucial US CPI report will influence expectations about the Fed’s future policy actions, which, in turn, will drive the USD demand and determine the near-term trajectory for the precious metal.
Daily Digest Market Movers: Gold price is weighed down by Fed uncertainty and elevated US bond yields
- The uncertainty over the timing of when the Federal Reserve will start cutting interest rates holds back traders from placing fresh directional bets around the Gold price.
- The New York Fed reported on Monday that US consumers’ projection of inflation fell to the lowest level in nearly three years in December, lifting bets for an imminent shift in the Fed’s policy stance
- Meanwhile, the resilient US economy, which is experiencing above-target inflation, gives the US central bank more headroom to keep interest rates higher for longer.
- This allows the yield in the benchmark 10-year US government bond to hold above the 4.0% threshold, which lends support to the US Dollar and caps the yellow metal.
- Bearish traders, however, seem reluctant and prefer to wait on the sidelines ahead of the latest US consumer inflation figures, due for release on Thursday.
- Citing a senior US Defense Department official, CNBC reported late Tuesday that Iran-backed Houthi militants launched the largest attack to date on commercial merchant vessels.
- A senior People’s Bank of China official said this Wednesday that the central bank may use monetary policy tools to provide strong support for reasonable credit growth.
- The official added that the PBoC will strengthen its counter-cyclical and cross-cycle policy adjustments to create favourable conditions for the country’s economic growth.
- There isn’t any relevant market-moving macro data scheduled for release from the US on Wednesday, leaving the XAU/USD at the mercy of the USD price dynamics.
Technical Analysis: Gold price remains depressed just above multi-week low, seems vulnerable
From a technical perspective, the multi-week low, around the $2,017 area touched on Monday, which now coincides with the 50-day Simple Moving Average (SMA), should protect the immediate downside. A convincing break below could make the Gold price vulnerable to accelerate the slide towards the $2,000 psychological mark. Some follow-through selling will expose the December swing low, around the $1,973 region, before the XAU/USD eventually drops to the $1,965-1,963 confluence, comprising the 100- and 200-day SMAs.
On the flip side, the $2,040-2,042 zone might continue to act as an immediate strong barrier, above which the Gold price could aim to retest Friday’s swing high, around the $2,064 area. The next relevant hurdle is pegged near the $2,077 area, which if cleared decisively will negate any near-term negative outlook and set the stage for a move towards reclaiming the $2,100 round figure.
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 .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | 0.09% | -0.06% | -0.28% | 0.26% | -0.05% | -0.02% | |
| EUR | 0.00% | 0.09% | -0.06% | -0.27% | 0.26% | -0.06% | 0.00% | |
| GBP | -0.09% | -0.09% | -0.15% | -0.36% | 0.17% | -0.15% | -0.09% | |
| CAD | 0.05% | 0.06% | 0.13% | -0.21% | 0.32% | 0.00% | 0.06% | |
| AUD | 0.26% | 0.26% | 0.35% | 0.20% | 0.51% | 0.20% | 0.24% | |
| JPY | -0.26% | -0.25% | -0.17% | -0.33% | -0.53% | -0.33% | -0.26% | |
| NZD | 0.06% | 0.06% | 0.15% | 0.00% | -0.21% | 0.31% | 0.04% | |
| CHF | 0.00% | 0.01% | 0.10% | -0.04% | -0.24% | 0.27% | -0.04% |
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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