- Gold price catches fresh bids on Thursday, although it remains confined in a familiar range.
- A softer USD, geopolitical risks and China’s economic woes act as a tailwind for the XAU/USD.
- The Fed rate-cut uncertainty should cap any meaningful gains ahead of the crucial US CPI report.
Gold price (XAU/USD) regains positive traction on Thursday, though remains below the $2,040-2,042 supply zone, or the top boundary of a multi-day range heading into the European session. Moreover, the precious metal remains well within the striking distance of a nearly three-week trough touched on Monday amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). That said, some repositioning trade ahead of the crucial US consumer inflation figures is seen weighing on the US Dollar (USD) and lending support to the commodity.
Apart from this, geopolitical risks stemming from the Israel-Hamas war and worries about a slow recovery in China keep a floor on the safe-haven Gold price. Meanwhile, investors have been scaling back their bets for a Fed rate cut move in March in the wake of the US economic resilience. This remains supportive of elevated US Treasury bond yields and should hold back traders from placing fresh bullish bets around the non-yielding yellow metal. Investors might also prefer to wait on the sidelines ahead of the key US data, which might provide clarity over the Fed’s rate-cut path.
Daily Digest Market Movers: Gold price draw support from softer USD amid some repositioning ahead of US CPI
- The uncertainty over the Federal Reserve’s rate-cut path keeps the US Dollar bulls on the defensive and assists the Gold price in gaining some positive traction amid some repositioning trade ahead of the US consumer inflation figures.
- The markets were quick to react to the Fed’s surprising dovish tilt at the December policy meeting and are now pricing in five interest rate cuts by the end of 2024, summing up to a cumulative of around 150 basis points (bps) of easing.
- The incoming US macro data underscored the fundamental resilience of the American economy, which, along with mixed signals from Fed officials, forced investors to scale back their expectations for more aggressive policy easing.
- New York Fed President John Williams said on Wednesday that the US central bank is in a ‘good place’ and has time to think about what’s next for rates, though would eventually need to get policy back to more neutral levels.
- The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold and should cap any further gains for the non-yielding yellow metal ahead of the crucial US CPI report, due for release later today.
- The headline US CPI is expected to rise by 0.2% in December, lifting the yearly rate to 3.2% from 3.1%, while the core gauge (excluding food and energy prices) is anticipated to ease to 3.8% YoY from 4.0% in the previous month.
- Cooler-than-expected inflation data will give the Fed more reason to cut interest rates this year and turn out to be a negative trigger for the Greenback, which, in turn, should lead to a fresh leg up for the precious metal.
- Conversely, a stronger US CPI print should provide the US central bank more headroom to keep interest rates higher for longer and boost the buck, forcing the XAU/USD to break through a multi-week low touched on Monday.
Technical Analysis: Gold price builds on its steady intraday ascent, remains below $2,040-2,042 key barrier
From a technical perspective, any subsequent move up might continue to confront stiff resistance near the $2,040-2,042 region. A sustained strength beyond has the potential to lift the Gold price further towards last Friday’s swing high, around the $2,064 area en route to the $2,077 area. Some follow-through buying will negate any near-term negative outlook and set the stage for a move towards reclaiming the $2,100 round figure.
On the flip side, the $2,020 level, followed by the multi-week low around the $2,017-2,016 area and the 50-day Simple Moving Average (SMA), currently near the $2,013 region should protect any meaningful slide. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the $2,000 psychological mark. Given that oscillators on the daily chart have just started gaining negative traction, the downward trajectory could extend further towards the December swing low, around the $1,973 region. The XAU/USD might eventually drop to the $1,965-1,963 confluence, comprising the 100- and 200-day SMAs.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.05% | -0.17% | -0.13% | -0.29% | -0.21% | -0.30% | -0.13% | |
| EUR | 0.05% | -0.12% | -0.08% | -0.25% | -0.17% | -0.26% | -0.07% | |
| GBP | 0.16% | 0.12% | 0.04% | -0.14% | -0.05% | -0.16% | 0.04% | |
| CAD | 0.14% | 0.09% | -0.03% | -0.15% | -0.08% | -0.16% | 0.02% | |
| AUD | 0.29% | 0.26% | 0.14% | 0.17% | 0.10% | -0.01% | 0.18% | |
| JPY | 0.21% | 0.16% | 0.04% | 0.06% | -0.09% | -0.11% | 0.08% | |
| NZD | 0.30% | 0.29% | 0.15% | 0.18% | 0.00% | 0.09% | 0.21% | |
| CHF | 0.11% | 0.08% | -0.04% | -0.01% | -0.18% | -0.09% | -0.19% |
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.
Read the full article here