Gold trims gains as Fed Williams pares back hopes of rate cuts in March
- Gold prices retreat from $2,040 although the near-term trend remains positive.
- The Dollar picks up as Fed Williams pared back hopes of Fed cuts in March.
- The focus now is on the S&P Global PMIs.
Gold price (XAU/USD) has turned lower from the $2,040 resistance as the US Dollar (USD) bounced up after the Federal Reserve's (Fed) President and CEO, John Williams, played down hopes of rate hikes in March. The Greenback was unfazed by a weaker-than-expected NY Empire State Manufacturing Index, which fell to -15.5 in December, below the 2 reading expected, following a 9.1% reading in November.
The broader trend, however, remains positive, with the precious metal moving within the week's range. The Fed struck an unexpectedly bearish tone on Wednesday, signaling the end of the hiking cycle and suggesting that rate cuts are coming "into view" which sent US bond yields and the US Dollar tumbling.
Thursday’s data from the US confirmed the resilience of the labour market while retail sales increased, offering some support for the Dollar. That said, investors remain confident that the Fed will be the first bigger central bank to start easing its monetary policy, which is keeping US Dollar recovery attempts limited.
Later today, the US preliminary S&P Global PMIs are expected to endorse the view of softer economic growth. This would allow the Fed to start rolling back its restrictive policy in early 2024, which is bad for the USD and might underpin support for Gold.
Daily Digest Market Movers: Gold downside attempts remain limited, with the USD weighed by Fed's dovish pivot
- Gold remains supported above $2020 as hopes of Fed cuts are acting as a headwind for the USD.
- Fed Williams cools hopes of rate cuts in March and suggests further rate cuts if needed.
- US NY Empire State Manufacturing Index deteriorates beyond expectations and backs the idea of a soft landing.
- The benchmark US 10-year yield is trading at four-month lows below 4%.
- The positive surprise on US retail sales and the larger-than-expected decline in Jobless claims provided some support to the US Dollar on Thursday.
- US Retail Sales rose by 0.3% in November against expectations of a 0.1% decline, following a 0.2% fall in October.
- US Initial Jobless claims declined to 202K to their lowest level since mid-October.
- Investors keep pricing a nearly 70% chance of a 25 bps rate cut in March, according to the CME Group Fed Watch tool.
- The ECB and the BoE maintained their hawkish tone, pushing back hopes of rate cuts after their respective meetings, which leaves the Fed as the first major central bank to start cutting interest rates.
- Later today, the Preliminary US ISM PMIs will provide further insight into the US economic outlook.
Technical Analysis: Gold remains bid with bulls focusing on the $2,040 resistance area
From a technical perspective, Gold remains bullish following a strong rebound from $1,970 on Wednesday. The pair, however, needs to breach the $2,040 resistance area to confirm the bullish view.
Such a scenario is likely to attract buyers, with their focus on May’s peak at $2,070 before attempting another assault to the all-time high, at $2,150.
On the contrary, failure to break the mentioned level would see price seek support at the $2.015 - $2,020 area where the confluence of the 50 and 100 SMAs in 4-hour charts meet the 50% Fibonacci Retracement of The October - December rally. Below here, bearish pressure would increase with the $1,977 support area coming into play.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.78% | -1.63% | -1.49% | -2.09% | -2.43% | -1.61% | -1.56% | |
| EUR | 1.74% | 0.15% | 0.26% | -0.31% | -0.63% | 0.17% | 0.23% | |
| GBP | 1.60% | -0.15% | 0.12% | -0.46% | -0.80% | 0.01% | 0.06% | |
| CAD | 1.48% | -0.30% | -0.12% | -0.58% | -0.89% | -0.09% | -0.07% | |
| AUD | 2.04% | 0.30% | 0.44% | 0.57% | -0.32% | 0.47% | 0.52% | |
| JPY | 2.35% | 0.62% | 0.67% | 0.89% | 0.31% | 0.78% | 0.83% | |
| NZD | 1.58% | -0.17% | -0.03% | 0.11% | -0.48% | -0.80% | 0.04% | |
| CHF | 1.52% | -0.22% | -0.09% | 0.05% | -0.53% | -0.87% | -0.07% |
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 prices 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.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
