Gold price remains on the defensive amid Fed rate cut uncertainty, elevated US bond yields

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• Gold price fails to build on the overnight goodish recovery move from over a one-month trough.
• Reduced bets for a March Fed rate cut put upward pressure on the US bond yields and caps gains.
• Escalating geopolitical tensions underpin the safe-haven XAU/USD and should limit the downside.

Gold price (XAU/USD) struggles to capitalize on the previous day’s modest recovery gains and oscillates in a narrow trading range heading into the European session on Friday. Investors continue to pare their bets for an early interest rate cut by the Federal Reserve (Fed), which leads to a further rise in the US Treasury bond yields. This, in turn, allows the US Dollar (USD) to stand tall near its highest level since December 13 touched earlier this week and seems to cap the upside for the non-yielding yellow metal. 

Apart from this, a generally positive tone around the equity markets is seen as another factor acting as a headwind for the safe-haven Gold price. The downside, however, seems limited in the wake of geopolitical tensions and worries about sustained weakness in economic weakness in China – the world’s second-largest economy. Nevertheless, the XAU/USD remains on track to register weekly losses. Moreover, the aforementioned fundamental backdrop suggests that the path of least resistance for the metal is to the downside. 

Daily Digest Market Movers: Gold price is undermined by doubts over early Fed rate cut and rising US bond yields

• The US-led forces continue to clash with the Iran-backed Houthi group in the Red Sea and seem to lend some support to the safe-haven Gold price amid a subdued US Dollar price action.
• Houthi rebels in Yemen launched two anti-ship ballistic missiles at a US-owned, Greek-operated tanker ship on Thursday and the US, in response, carried out its fifth strike against Houthi targets.
• Pakistan undertook a series of military strikes against terrorist hideouts in the Sistan-Baluchistan province of Iran, while the latter began a planned air defense drill from its port of Chabahar near Pakistan.
• The USD consolidates below its highest level since December 13 touched earlier this week, though reduced bets for a March rate cut by the Federal Reserve continue to act as a tailwind.
• The incoming resilient US macro data released this week suggested that the economy is in good shape and gives the central bank headroom to keep interest rates higher for longer.
• Against the backdrop of the upbeat US Retail Sales figures on Wednesday, data released on Thursday showed that the Initial Jobless Claims fell to the lowest level since September 2022.
• The markets were quick to react to the strong labor-market report and are now pricing just over a 50% chance of a rate cut at the March FOMC meeting, down from 75% a week ago.
• The yield on the benchmark 10-year US government bond touched its highest level since mid-December, which favours the USD bulls and should cap gains for the non-yielding yellow metal.
• Traders now look to the US macro data – the Preliminary Michigan Consumer Sentiment and Inflation Expectations, along with Existing Home Sales – for short-term opportunities.

Technical Analysis: Gold price struggles to breakthrough 50-day SMA, bias seems tilted in favour of bears

From a technical perspective, the lack of follow-through buying beyond the 50-day Simple Moving Average (SMA) suggests that the selling bias is still far from being over. Furthermore, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. Hence, any further move up might still be seen as an opportunity for bearish traders and runs the risk of fizzling out rather quickly near the $2,040-2,042 static resistance. Some follow-through buying, however, might trigger a short-covering rally and lift the XAU/USD towards the $2,077 area en route to the $2,100 psychological mark.

On the flip side, bearish traders might now wait for a sustained break below the $2,000 round figure before placing fresh bets. The Gold price might then accelerate the downfall towards the December monthly swing low, around the $1,974-1,973 region. The latter near the 100- and 200-day SMAs confluence, around the $1,971-1,963 area, which if broken decisively should pave the way for deeper losses towards the $1,955 intermediate support. The XAU/USD could eventually drop to the November swing low, around the $1,932-1,931 region.