Gold price sticks to modest intraday gains, lacks follow-through ahead of US macro data
|- Gold price catches fresh bids on Thursday and reverses a major part of the overnight losses.
- Dovish Fed expectations keep the USD bulls on the defensive and lend support to the metal.
- A softer risk tone further benefits the safe-haven XAU/USD ahead of the US macro releases.
Gold price (XAU/USD) attracts some dip-buying following the overnight pullback from the vicinity of the weekly top and sticks to its modest intraday gains through the first half of the European session on Thursday. Bets that the Federal Reserve (Fed) will completely pivot away from its hawkish stance and start cutting rates as early as March 2024 drag the US Treasury bond yields to a multi-month low. This, in turn, fails to assist the US Dollar (USD) to capitalize on Wednesday's upbeat US data-inspired gains and benefits the non-yielding yellow metal.
Apart from this, a slight deterioration in the global risk sentiment, as depicted by the overnight abrupt sell-off on Wall Street and a generally weaker tone around the European equity markets, underpins the safe-haven Gold price. Despite a combination of supporting factors, the XAU/USD remains well within a familiar trading range held over the past week or so, warranting caution before positioning for any further gains. Traders seem reluctant to place aggressive bets and opt to wait for the release of the US Core Personal Consumption Expenditure (PCE) Price Index on Friday.
The key inflation data will influence the Fed's future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the US Dollar-denominated Gold price. In the meantime, traders on Thursday will take cues from the US economic docket – featuring the final Q3 GDP print, the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index. This, along with the US bond yields and the broader risk sentiment, should further contribute to producing short-term trading opportunities around the safe-haven precious metal.
Daily Digest Market Movers: Gold price draws support from softer risk tone, Fed rate cut bets
- Rising bets that the Federal Reserve will eventually pivot away from its hawkish stance early next year turn out to be a key factor acting as a tailwind for the Gold price.
- Dovish Fed expectations drag the yield on the benchmark 10-year US government bond to its lowest level since July and keep the US Dollar bulls on the defensive.
- A slew of Fed officials recently tried to push back on the idea of rapid interest rate cuts next year, albeit did little to provide any meaningful impetus to the buck.
- The Conference Board's US Consumer Confidence Index jumped to a five-month high level of 110.7 in December from 101, rising the most since early 2021.
- US existing home sales unexpectedly rose by 0.8% in November, to a seasonally adjusted annual rate of 3.82 million units, snapping five straight months of decline.
- The overnight dramatic turnaround in the US equity markets is seen as another factor that benefits the safe-haven precious metal and remains supportive of the uptick.
- Traders now look forward to the final US GDP print, which is expected to show that the world's largest economy grew by a 5.2% annualized pace during the third quarter.
- Thursday's US economic docket also features the release of Weekly Initial Jobless Claims data and the Philly Fed Manufacturing Index later during the US session.
- The focus, meanwhile, remains on the Core PCE Price Index, due on Friday, which will influence the Fed's future rate decisions and infuse volatility in the markets.
Technical Analysis: Gold price extends the range play in a familiar range, bullish potential intact
From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle pattern on short-term charts. This marks a consolidation phase before the next leg of a directional move. Against the backdrop of last week's post-FOMC rally from the vicinity of the 50-day Simple Moving Average (SMA) and the occurrence of a golden cross, with the 50-day SMA holding above the 200-day SMA, support prospects for an eventual break higher. The constructive setup is reinforced by the fact that oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the upside.
That said, it will still be prudent to wait for a sustained breakout through the $2,047-2,048 region, or the top boundary of the aforementioned trading band, before positioning for any further gains. The XAU/USD might then accelerate the positive move towards the next relevant resistance near the $2,072-2,073. The momentum could get extended further and allow the Gold price to reclaim the $2,100 round figure.
On the flip side, the $2,028 region is likely to protect the immediate downside ahead of the trading range support, near the $2,017 zone. A convincing break below the latter might shift the short-term bias in favour of bearish traders. The subsequent decline could then drag the Gold price to the $2,000 psychological mark. This is closely followed by the 50-day SMA, near the $1,992-1,991 zone, below which the XAU/USD could retest last week's swing low, around the $1,973 region, and decline further to the 200-day SMA, currently near the $1,957 area.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.49% | 0.29% | -0.16% | -0.76% | 0.44% | -0.67% | -0.99% | |
| EUR | 0.49% | 0.78% | 0.35% | -0.26% | 0.94% | -0.18% | -0.50% | |
| GBP | -0.29% | -0.78% | -0.45% | -1.05% | 0.14% | -0.96% | -1.28% | |
| CAD | 0.17% | -0.33% | 0.44% | -0.60% | 0.58% | -0.51% | -0.84% | |
| AUD | 0.75% | 0.26% | 1.04% | 0.60% | 1.17% | 0.09% | -0.22% | |
| JPY | -0.46% | -0.93% | -0.16% | -0.58% | -1.22% | -1.13% | -1.42% | |
| NZD | 0.65% | 0.18% | 0.95% | 0.49% | -0.08% | 1.09% | -0.33% | |
| CHF | 0.98% | 0.49% | 1.27% | 0.83% | 0.22% | 1.40% | 0.32% |
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
What does the Federal Reserve do, how does it impact the US Dollar?
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.
How often does the Fed hold monetary policy meetings?
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.
What is Quantitative Easing (QE) and how does it impact USD?
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.
What is Quantitative Tightening (QT) and how does it impact 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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