- Gold price witnessed an intraday turnaround from an all-time peak touched this Monday.
- An uptick in the US bond yields revives the USD demand and prompts some profit-taking.
- Geopolitical tensions, looming recession risks and Fed rate cuts should limit further losses.
Gold price (XAU/USD) retreats around $90 from a record peak, around the $2,144-$2,145 region and drops to a fresh daily low during the early part of the European session on Monday. The precious metal currently trades around the $2,068 area, down less than 0.10% for the day, and is pressured by a goodish pickup in the US Dollar (USD) demand, bolstered by a modest uptick in the US Treasury bond yields. This, along with overbought conditions on the daily chart, prompts bullish traders to take some profits off the table and exerts some pressure on the US Dollar-denominated commodity. The fundamental backdrop, however, still seems tilted firmly in favour of bullish traders and supports prospects for the emergence of some dip-buying at lower levels.
Despite Federal Reserve (Fed) Chair Jerome Powell’s attempts on Friday to moderate rate-cut expectations, investors seem convinced that the US central bank is done with its policy tightening campaign. This should keep a lid on any meaningful upside for the US bond yields and hold back the USD bulls from placing aggressive bets. Meanwhile, a further escalation of geopolitical tension in the Middle East comes on the back of fears of another COVID-19-like respiratory illness outbreak in China. This, along with the worsening conditions in the world’s second-largest economy and a darkening global outlook, could lend support to the safe-haven Gold price and help limit the downside. Traders might also prefer to wait on the sidelines ahead of key US macro data.
This week’s rather busy US economic docket highlights the release of ISM Services PMI and JOLTS Job Openings data on Tuesday, followed by the ADP report on private-sector employment on Wednesday. The focus, however, will remain glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payroll (NFP) report, due on Friday. Hence, it will be prudent to wait for strong follow-through selling before confirming that the Gold price has topped out in the near term and positioning for any further depreciating move.
Daily Digest Market Movers: Gold price reterats further from all-time high amid a pickup in USD demand
- The global risk-on rally hit a roadblock after an attack on an American warship and commercial vessels in the Red Sea on Sunday by Iran-backed Houthi rebels in Yemen.
- A US military official confirmed that a “self-defence strike on an imminent threat” killed five Iraqi militants near the northern city of Kirkuk on Sunday afternoon.
- A modest US Dollar uptick overshadows the risk of a further escalation of geopolitical tensions in the Middle East and prompts some profit-taking around the Gold price.
- That said, growing acceptance that the Federal Reserve (Fed) will maintain the status quo in December and start cutting rates as early as March 2024 should lend support.
- Fed Jerome Powell on Friday said that it would be premature to conclude when policy might ease, pushing back against speculations of more aggressive rate cuts.
- Investors, however, seem convinced about an imminent shift in the Fed’s policy stance, which should cap any recovery in the US bond yields and the Greenback.
- This week’s US economic docket highlights the release of the ISM Services PMI on Tuesday, followed by the ADP report on private-sector employment on Wednesday and the US crucial NFP report on Friday.
- A recent survey by the World Gold Council showed that 24% of all central banks intend to increase their Gold reserves in the next 12 months, as they increasingly grow pessimistic about the US as a reserve asset.
Technical Analysis: Gold price manages to find some support near 38.2% Fibo. level, bullish potential seems intact
From a technical perspective, the intraday pullback drags the precious metal below the 23.6% Fibonacci retracement level of the rally from the November monthly swing low, around the $1,932-$1,931 region. The Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and holding back bulls from placing fresh bets around the Gold price.
Some follow-through selling, meanwhile, could drag the XAU/USD to the 38.2% Fibo. level, around the $2063-2,062 zone, though is likely to find decent support near the $1,952-1,950 area. On the flip side, move back above the $2,095-2,100 immediate hurdle might now confront some resistance near the $2,118 area. Some follow-through buying should allow the Gold price to retest the record high around the $2,144-$2,145 region, which if cleared will reinforce the near-term positive outlook and pave the way for additional gains.
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 Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.15% | 0.35% | 0.39% | 0.54% | 0.21% | 0.49% | 0.57% | |
| EUR | -0.18% | 0.19% | 0.23% | 0.38% | 0.03% | 0.35% | 0.41% | |
| GBP | -0.37% | -0.20% | 0.05% | 0.19% | -0.13% | 0.17% | 0.23% | |
| CAD | -0.41% | -0.26% | -0.06% | 0.13% | -0.21% | 0.12% | 0.16% | |
| AUD | -0.57% | -0.43% | -0.22% | -0.18% | -0.33% | -0.06% | 0.00% | |
| JPY | -0.25% | -0.04% | 0.30% | 0.23% | 0.36% | 0.33% | 0.35% | |
| NZD | -0.50% | -0.35% | -0.17% | -0.10% | 0.05% | -0.30% | 0.06% | |
| CHF | -0.59% | -0.44% | -0.22% | -0.17% | -0.02% | -0.35% | -0.05% |
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).
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.
Read the full article here