Gold price draws support from softer risk tone, weaker Dollar ahead of US PMIs data
|- Gold price struggles to gain any meaningful traction on the last day of the week.
- A pickup in US bond yields acts as a headwind for the XAU/USD.
- The Fed rates uncertainty and a softer risk tone lend some support to the metal.
Gold price (XAU/USD) struggles to capitalize on the previous day's modest gains and oscillates in a narrow trading band, below the $2,000 psychological mark through the first half of the European session. Investors now seem reluctant to place aggressive directional bets and are seeking more clarity over the Federal Reserve's (Fed) rate-hike path.
The FOMC minutes released on Tuesday struck a more hawkish tone. Adding to this, Wednesday's upbeat US labor market and consumer sentiment data fueled speculations that the Fed will keep interest rates higher for longer. This, along with a goodish pickup in the US Treasury bond yields, turns out to be a key factor acting as a headwind for the non-yielding Gold price on the last day of the week.
Market players, however, seem convinced that the US central bank will keep rates steady rather than hiking and have been pricing in the possibility of a series of rate cuts in 2024. This keeps a lid on this week's USD recovery from its lowest level since August 31. Apart from this, weak cues from the equity markets benefit the safe-haven Gold price and should help limit any meaningful downside.
Nevertheless, the XAU/USD remains on track to register the second consecutive weekly gain as traders look to the flash US PMIs for some impetus.
Daily Digest Market Movers: Gold price lacks direction
- A combination of diverging forces fails to provide any meaningful impetus to the Gold price and leads to a subdued/range-bound price action during the Asian session on Friday.
- A disconnect between the Federal Reserve's hawkish outlook and market expectations for rate cuts in 2024 is holding back traders from placing directional bets around the XAU/USD.
- The FOMC meeting minutes released on Tuesday revealed that policymakers backed the case to keep interest rates higher for longer to tame inflation.
- Bets for a rate hike in December shrunk to zero following the release of the October inflation report. Moreover, the markets are pricing over a 25% chance of a rate cut as early as March 2024.
- Wednesday's upbeat US labor market and consumer sentiment data, along with rebounding US Treasury bond yields, lend support to the USD and cap gains for the precious metal.
- Dovish Fed expectations, meanwhile, warrant some caution for the USD bulls and might continue to lend some support to the commodity ahead of the flash US PMI prints for November.
Technical Analysis: Gold price struggles with $2,000 level
The Gold price, so far, has been struggling to move back above the $2,000 psychological mark. This comes on top of the recent repeated failures ahead of the $2,010 level, or a multi-month peak touched in October and warrants caution for bullish traders. That said, oscillators on the daily chart are holding comfortably in the positive territory and support prospects for the emergence of some dip-buying near the $1,989-1,988 zone.
This is followed by support near the $1,979-1,978 region and the weekly low, around the $1,965 area. A convincing break below the latter might expose the 200-day Simple Moving Average (SMA), currently around the $1,940 level, and $1,933-1,932 confluence, comprising the 50-day and 100-day SMAs.
On the flip side, the $2,000 mark might continue to act as an immediate barrier ahead of the $2,007 area and the $2,009-2,010 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and allow the Gold price to accelerate the positive move further towards the $2,022 resistance en route to the next relevant hurdle near the $2,040 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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.04% | -0.08% | 0.01% | -0.12% | -0.27% | -0.18% | -0.16% | |
| EUR | 0.07% | -0.01% | 0.08% | -0.06% | -0.20% | -0.11% | -0.10% | |
| GBP | 0.08% | 0.01% | 0.10% | -0.05% | -0.19% | -0.10% | -0.11% | |
| CAD | -0.02% | -0.09% | -0.10% | -0.14% | -0.29% | -0.20% | -0.19% | |
| AUD | 0.12% | 0.06% | 0.04% | 0.13% | -0.15% | -0.05% | -0.04% | |
| JPY | 0.22% | 0.19% | 0.13% | 0.24% | 0.14% | 0.07% | 0.14% | |
| NZD | 0.19% | 0.11% | 0.10% | 0.19% | 0.05% | -0.09% | 0.01% | |
| CHF | 0.17% | 0.11% | 0.09% | 0.19% | 0.04% | -0.10% | 0.00% |
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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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