- Gold price regains positive traction and stalls its corrective slide from a multi-week top.
- Dovish Fed expectations and geopolitical risks continue to lend support to the XAU/USD.
- Rising US bond yields underpin the US Dollar and might keep a lid on any further gains.
Gold price (XAU/USD) kicks off the new year on a positive note and reverses a major part of its losses recorded over the past two trading days. The precious metal sticks to its modest intraday gains heading into the European session and currently trades around the $2,075 region, up over 0.50% for the day, though below a multi-week high touched last Thursday. Growing acceptance that the Federal Reserve (Fed) will soon start cutting interest rates, as early as March, along with geopolitical risks and concerns about fragile economic recovery in China, act as a tailwind for the non-yielding yellow metal.
That said, the ongoing US Dollar (USD) recovery from a five-month low touched last week, bolstered by a further rise in the US Treasury bond yields, might keep a lid on any further gains for the Gold price. Market participants also seem reluctant amid relatively thin trading volumes and might prefer to wait for the FOMC minutes on Wednesday before placing directional bets. This week’s busy US economic docket also features important macro releases scheduled at the beginning of a new month, which should further contribute to providing some meaningful impetus to the precious metal.
Daily Digest Market Movers: Gold price is underpinned by a combination of supporting factors
- Gold price registered a 13% annual rise in 2023, marking its best year since 2020, and seems poised to prolong its recent well-established appreciating trend.
- Hopes that the Federal Reserve will achieve a soft landing for the economy in 2024 and ease its policy as early as March lend support to the yellow metal.
- The CME’s FedWatch tool indicates a more than 85% chance that the Fed will deliver a rate cut in March and a cumulative of 150 basis points (bps) rate cut by the year-end.
- The safe-haven precious metal draws additional support from geopolitical risks stemming from the war in Ukraine and in the Middle East, and China’s economic woes.
- US forces struck back against the Iran-backed Houthi group in the Red Sea in response to a series of strikes on several military and commercial vessels in the region.
- The official Chinese PMI released over the weekend indicated a further deterioration in manufacturing activity and little signs of recovery at the end of 2023.
- A private-sector survey, meanwhile, showed on Tuesday that China’s factory activity expanded at a quicker pace in December but business confidence for 2024 remained subdued.
- The US Dollar builds on its recovery from a five-month low amid a further rise in the US Treasury bond yields and might cap further gains for the XAU/USD.
- The yield on the benchmark 10-year US government bond recovered further from its lowest level since July touched last week and underpins the buck.
- Traders now look to the release of FOMC minutes on Wednesday and important US macro releases, including the NFP report, for some meaningful impetus.
- This week’s busy economic docket also features the ISM Manufacturing PMI and JOLTS Job Openings on Wednesday, followed by the ADP report on Thursday.
Technical Analysis: Gold price bulls now await a move beyond the $2,077-2078 resistance zone
From a technical perspective, the all-time high closing, around the $2,077-2,078 region printed last Wednesday, now seems to act as an immediate barrier ahead of the $2,088 zone, or the multi-week high. Some follow-through buying should allow the Gold price to reclaim the $2,100 round-figure mark. The subsequent move up has the potential to lift the XAU/USD further towards retesting the record peak, around the $2,144 area set in early December.
On the flip side, the $2,060-2,058 region now seems to protect the immediate downside ahead of the $2,048 horizontal zone and the $2,040 area. Failure to defend the said support levels might turn the Gold price vulnerable to accelerate the slide towards the $2,020 intermediate support en route to the 50-day Simple Moving Average (SMA), currently near the $2,006 region, and the $2,000 psychological mark.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.14% | 0.09% | 0.09% | -0.10% | 0.28% | 0.18% | 0.32% | |
| EUR | -0.14% | -0.04% | -0.04% | -0.22% | 0.15% | 0.05% | 0.18% | |
| GBP | -0.09% | 0.05% | 0.00% | -0.21% | 0.20% | 0.08% | 0.19% | |
| CAD | -0.09% | 0.05% | 0.00% | -0.17% | 0.20% | 0.10% | 0.22% | |
| AUD | 0.10% | 0.22% | 0.17% | 0.17% | 0.37% | 0.26% | 0.39% | |
| JPY | -0.30% | -0.14% | -0.20% | -0.18% | -0.36% | -0.10% | 0.02% | |
| NZD | -0.19% | -0.05% | -0.10% | -0.10% | -0.29% | 0.12% | 0.06% | |
| CHF | -0.32% | -0.15% | -0.20% | -0.20% | -0.43% | -0.01% | -0.11% |
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.
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