- Gold price attracts buyers for the fourth straight day on Friday amid some haven flows.
- The Fed’s hawkish stance, elevated US bond yields and a bullish USD should cap gains.
- Traders might also opt to wait for the release of the key US NFP report later this Friday.
Gold price (XAU/USD) prolongs its uptrend for the fourth straight day and climbs to a four-week top, around the $2,678-2,679 area during the early European session on Friday. Persistent geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with trade war fears and a generally weaker risk tone, turn out to be key factors underpinning the safe-haven precious metal. Furthermore, expectations that Trump’s expansionary policies will boost inflation further benefit the precious metal’s status as a hedge against rising prices.
It, however, remains to be seen if bulls can retain control amid sustained US Dollar (USD) buying and elevated US Treasury bond yields, bolstered by the Federal Reserve’s (Fed) hawkish shift, which tends to undermine the non-yielding Gold price. Traders might also opt to lighten their bets ahead of the release of the key US Nonfarm Payrolls (NFP) report later during the North American session. Nevertheless, the fundamental backdrop supports prospects for additional gains for the XAU/USD, which remains on track to end in the green for the second straight week.
Gold price bulls retain control despite sustained USD buying ahead of US NFP report
- CNN reported on Wednesday that US President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for universal tariffs on allies and adversaries.
- Ukrainian forces launched a new surprise offensive in Kursk, inside Russia on August 6 and were reported to have advanced in three waves using company-sized assaults backed by armoured vehicles.
- The Israel Defense Forces stated that the commander of Hamas’ Sabra battalion in Gaza City, his deputy and two elite Nukhba company commanders were killed in a series of airstrikes last week.
- The Federal Reserve adopted a more hawkish stance in December and projected only two quarter-point interest rate cuts in 2025 amid still elevated inflation in the world’s largest economy.
- Boston Fed President Susan Collins said on Thursday that the economy is on a gradual, uneven trajectory to the 2% inflation target and the current outlook calls for a patient approach to rate cuts.
- Philadelphia Fed President Patrick Harker noted that the central bank is expected to cut rates further but explained that the path will depend on data and that it is taking longer to get inflation back to 2%.
- Kansas Fed President Jeffrey Schmid noted that inflation is moving toward target, growth is showing momentum, and the jobs market is still healthy. Any further rate cuts should be gradual and data-driven.
- Fed Board of Governors member Michelle Bowman said that the current stance of policy may not be as restrictive as others may see it and pent-up demand following the election could pose inflationary risks.
- Trump’s policies are expected to stoke further inflation and further force the Fed to slow the pace of rate cuts this year, which keeps the US Treasury bond yields close to a multi-month high touched last week.
- Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 160K jobs in December and the Unemployment Rate held steady at 4.2%.
Gold price uptrend remains unabated, further move-up towards $2,700 on the cards
From a technical perspective, this week’s breakout through the $2,665 horizontal resistance was seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart have just started gaining positive traction, the Gold price seems poised to climb further to the $2,681-2,683 intermediate hurdle and then aim to reclaim the $2,700 round-figure mark.
On the flip side, dips towards the overnight swing low, around the $2,655 area, could be seen as a buying opportunity. This is followed by support near the $2,635 region and the weekly low, around the $2,615-2,614 zone touched on Monday, and the $2,600 confluence. The latter comprises the 100-day Exponential Moving Average (EMA) and a short-term ascending trend line extending from the November monthly low, which if broken decisively will shift the bias in favor of bearish traders.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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