Gold price struggles near two-month low as hot US CPI temper Fed rate cut bets
|- Gold price hits a fresh two-month low amid bets that the Fed will keep rates higher for longer.
- The expectations were reaffirmed by the stronger-than-expected US CPI released on Tuesday.
- A softer risk tone lends support to the safe-haven XAU/USD and helps limit any further losses.
Gold price (XAU/USD) continues with its struggle to attract buyers and languishes below the $2,000 psychological mark, or a two-month low through the early European session on Monday. The stronger-than-expected US consumer inflation report released on Tuesday reaffirmed market expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. This, in turn, is seen undermining the non-yielding yellow metal, though a combination of factors lends some support and helps limit the downside.
The US Dollar (USD) pulls back from its highest level since November 14 touched on Tuesday amid a modest downtick in the US Treasury bond yields. This, along with a generally weaker tone around the equity markets, assists the Gold price in defending the 100-day Simple Moving Average (SMA) support. The aforementioned fundamental backdrop, however, suggests that the path of least resistance for the XAU/USD is to the downside. Hence, any attempted recovery might be seen as a selling opportunity and fade rather quickly.
Daily Digest Market Movers: Gold price continues to be weighed down by delayed Fed rate cut bets
- The US inflation data released on Tuesday tempered prospects of an early interest rate cut by the Federal Reserve and continues to undermine the non-yielding Gold price.
- The Bureau of Labor Statistics reported that the headline US CPI rose by 0.3% in January and softened to the 3.1% YoY rate from the 3.4% in December, beating expectations.
- Furthermore, the Core CPI, which excludes volatile food and energy prices, also surpassed consensus estimates and matched December's increase of 3.9%.
- Against the backdrop of the recent stronger US macro data, the still-too-high consumer inflation gives the Fed little reason to rush on cut interest rates.
- The CME Group's FedWatch Tool indicates just over a 35% chance of a rate cut in April and that the Fed will likely not cut rates until the June policy meeting.
- The expectations lift the yield on the benchmark 10-year US government bond to its highest level since December 1 and act as a tailwind for the US Dollar.
- Renewed concerns over higher for longer interest rates temper investors' appetite for riskier assets and assist the XAU/USD to defend the 100-day SMA support.
Technical Analysis: Gold price seems poised to slide further and test 200-day SMA near $1,965 area
From a technical perspective, some follow-through selling below the $1,990-1,988 region (100-day SMA) might expose the very important 200-day SMA support, currently pegged near the $1,965 area. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move. The Gold price might then fall to an intermediate support near the $1,952-1,950 zone before eventually dropping to the November 2023 low, around the $1,932-1,931 region.
On the flip side, any attempted recovery beyond the $2,000 mark now seems to confront stiff resistance near the $2,011-2,012 area. That said, some follow-through buying, leading to a subsequent strength beyond the $2,015 level, might trigger a short-covering rally and lift the Gold price to the 50-day SMA, currently around the $2,030 region. The latter should act as a key pivotal point, which if cleared decisively should pave the way for additional gains beyond the $2,044-2,045 intermediate hurdle, towards the $2,065 supply zone.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | -0.05% | -0.03% | -0.10% | -0.12% | -0.20% | -0.10% | |
| EUR | 0.02% | -0.03% | -0.02% | -0.08% | -0.11% | -0.18% | -0.08% | |
| GBP | 0.04% | 0.03% | 0.01% | -0.07% | -0.07% | -0.15% | -0.05% | |
| CAD | 0.03% | 0.01% | -0.01% | -0.06% | -0.08% | -0.17% | -0.07% | |
| AUD | 0.11% | 0.10% | 0.07% | 0.09% | -0.01% | -0.08% | 0.01% | |
| JPY | 0.12% | 0.10% | 0.08% | 0.11% | -0.04% | -0.08% | 0.02% | |
| NZD | 0.21% | 0.18% | 0.15% | 0.17% | 0.11% | 0.08% | 0.12% | |
| CHF | 0.09% | 0.08% | 0.05% | 0.07% | -0.01% | -0.02% | -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).
Gold FAQs
Why do people invest in Gold?
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Who buys the most Gold?
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
How is Gold correlated with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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