Gold price retreats further from multi-month top amid some profit-taking ahead of Fed meeting
|- Gold price kicks off the new week on a weaker note and retreats from a multi-month high.
- A slightly overbought RSI prompts profit-taking ahead of this week’s key event/data risks.
- Geopolitical tensions in the Middle East should limit losses for the safe-haven XAU/USD.
Gold price (XAU/USD) advanced beyond the $2,000 psychological mark on Friday, hitting its highest level since May 16 and registering a third straight weekly gain. That said, elevated US Treasury bond yields, bolstered by the prospects for further policy tightening by the Federal Reserve (Fed), underpins the US Dollar (USD) and prompts some profit-taking around the non-yielding XAU/USD on the first day of a new week. The corrective decline extends through the first half of the European session and drags the yellow metal to a fresh daily low, around the $1,992 region in the last hour.
The downside for the Gold price, however, seems cushioned on the back of an escalation in the Israel-Hamas conflict, which might continue to fuel safe-haven buying. Traders might also refrain from placing aggressive directional bets ahead of this week's key central bank event risks. The Bank of Japan (BoJ) is scheduled to announce its policy decision on Tuesday, followed by the key monetary policy update by the Federal Reserve (Fed) on Wednesday and the Bank of England (BoE) meeting on Thursday. Apart from this, the official PMIs from China, the prelim EuroZone GDP and CPI, along with the US monthly jobs report (NFP), should provide some meaningful impetus to the precious metal.
Daily Digest Market Movers: Gold price erodes a part of Friday's strong rally to a multi-month top
- Gold price slides below the $2,000 psychological mark on Monday, though the increasing risk of an escalation of geopolitical tensions in the Middle East should help limit losses.
- Palestinians in northern Gaza reported fierce air and artillery strikes early on Monday as Israeli troops, backed by tanks, pressed into the besieged enclave with a ground assault.
- The US Commerce Department reported on Friday that consumer spending increased more than expected in September and that monthly inflation accelerated during the reported month.
- This comes on top of the upbeat Advance US GDP report, which showed that the world's largest economy grew at its fastest pace in nearly two years in the third quarter.
- The US economic resilience should allow the Federal Reserve (Fed) to stick to its hawkish stance and keep hopes alive for one more interest rate hike by the year-end.
- The hawkish outlook remains supportive of elevated US Treasury bond yields and continues to underpin the US Dollar, acting as a headwind for the precious metal.
- Traders now look to the outcome of a crucial two-day FOMC monetary policy meeting for clues about the future rate-hike path before placing fresh directional bets.
- The Bank of Japan and the Bank of England are also scheduled to announce their respective policy decisions and infuse some volatility in the global financial markets.
- Investors this week will further take cues from the official Chinese PMIs, the flash EuroZone CPI and GDP print and the closely-watched US jobs report (NFP).
Technical Analysis: Gold price corrects back closer to $1,986-1,985 horizontal resistance breakpoint
From a technical perspective, the Relative Strength Index (RSI) on the daily chart is already flashing slightly overbought conditions and holding back bulls from placing fresh bets around the Gold price. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of a multi-week-old uptrend. That said, any meaningful corrective decline is likely to find decent support near the $1,986-1,985 horizontal resistance breakpoint.
The said areas should act as a pivotal point, below which the Gold price could accelerate the fall towards the $1,972 support zone. On the flip side, some follow-through buying beyond the $2,005 area, or the multi-month peak touched on Friday, will set the stage for a move towards the next relevant hurdle near the $2,022 area.
US Dollar price this month
The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.26% | 0.58% | 1.94% | 1.10% | 0.12% | 2.73% | -1.40% | |
| EUR | -0.26% | 0.35% | 1.94% | 0.90% | -0.15% | 2.54% | -1.51% | |
| GBP | -0.61% | -0.35% | 1.27% | 1.03% | -0.82% | 2.12% | -2.00% | |
| CAD | -1.98% | -1.96% | -1.43% | -0.26% | -1.86% | 0.91% | -3.41% | |
| AUD | -1.13% | -1.74% | -1.06% | 0.86% | -1.87% | 1.63% | -2.54% | |
| JPY | -0.12% | 0.14% | 0.45% | 2.07% | 1.82% | 2.95% | -1.47% | |
| NZD | -2.81% | -2.55% | -2.21% | -0.81% | -0.84% | -2.68% | -4.18% | |
| CHF | 1.14% | 1.56% | 1.95% | 3.45% | 2.45% | 1.47% | 4.08% |
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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