- Gold price edges higher for the second straight day, albeit lacks follow-through buying.
- Geopolitical tensions, along with sliding US bond yields, lend support ahead of the FOMC.
- The uncertainty over the timing of the first Fed rate cut might cap any further positive move.
Gold price (XAU/USD) attracts some buyers for the second straight day on Tuesday, albeit lacks bullish conviction and remains below the $2,040-$2,042 supply zone heading into the European session. A further escalation of conflicts in the Middle East has raised the risk of a broader crisis in the region and kept a lid on the recent optimism in the markets. This, along with the ongoing downfall in the US Treasury bond yields, turn out to be key factors lending support to the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) struggle to gain any meaningful traction and remains confined in a familiar range held over the past week or so as traders seek more clarity over the timing of when the Federal Reserve (Fed) will start cutting rates. This further acts as a tailwind for the US Dollar-denominated Gold price, though any meaningful appreciating move still seems elusive ahead of the crucial FOMC policy meeting starting this Tuesday. This warrants some caution before positioning for any further gains.
Daily Digest Market Movers: Gold price attracts some haven flows amid rising geopolitical risks
- Traders opt to move on the sidelines ahead of the critical FOMC monetary policy meeting starting this Tuesday, which leads to subdued range-bound price action around the Gold price on Tuesday.
- The Fed decision on Wednesday and the accompanying policy statement will be scrutinized for cues about the timing of the first rate cut, which will influence the non-yielding yellow metal.
- In the meantime, the ongoing downfall in the US Treasury bond yields, along with the risk of a further escalation of geopolitical tensions in the Middle East, lends support to the safe-haven XAU/USD.
- The US Treasury lowered its forecast for federal borrowing to $760 billion from a prior estimate of $816 billion and dragged the yield on the benchmark 10-year US government bond closer to 4.0%.
- Reports suggest that President Joe Biden will authorize US military action in response to the drone attack by pro-Iranian militias near the Jordan-Syria border that killed three American soldiers.
- A direct US confrontation with Iran will adversely impact global Crude Oil supplies, which could eventually trigger a possible inflation shock for the world economy and hinder global growth.
- Tuesday’s release of the Prelim GDP prints from the Eurozone, along with the Conference Board’s Consumer Confidence Index and JOLTS Job Openings data from the US, might provide some impetus.
Technical Analysis: Gold price needs to move beyond $2,040-2,042 barrier for bulls to seize control
From a technical perspective, bulls might still wait for a sustained move beyond the $2,040-2,042 supply zone before placing fresh bets and positioning for any further gains. Given that oscillators on the daily chart have just started moving into the positive territory, the Gold price could then climb to the $2,077 resistance zone before aiming to reclaim the $2,100 round-figure mark.
On the flip side, the overnight swing low, around the $2,020-2,019 area, now seems to protect the immediate downside ahead of the $2,012-2,010 zone and the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and expose the 100-day SMA, currently near the $1,978-1,977 region. The Gold price could eventually drop to the very important 200-day SMA, near the $1,964 region.
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 Australian Dollar (AUD).
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | 0.03% | -0.01% | 0.06% | -0.06% | -0.07% | 0.05% | |
| EUR | -0.03% | 0.00% | -0.04% | 0.04% | -0.09% | -0.10% | 0.01% | |
| GBP | -0.04% | 0.00% | -0.05% | 0.03% | -0.09% | -0.10% | 0.02% | |
| CAD | 0.01% | 0.06% | 0.05% | 0.08% | -0.04% | -0.05% | 0.07% | |
| AUD | -0.07% | -0.03% | -0.03% | -0.08% | -0.12% | -0.13% | -0.01% | |
| JPY | 0.06% | 0.10% | 0.11% | 0.04% | 0.11% | -0.01% | 0.11% | |
| NZD | 0.07% | 0.10% | 0.10% | 0.06% | 0.14% | 0.01% | 0.11% | |
| CHF | -0.05% | -0.02% | -0.01% | -0.06% | 0.02% | -0.10% | -0.10% |
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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