Gold seems poised to register weekly gains as post-FOMC USD selling remains unabated

Gold price is seen consolidating its weekly gains registered over the past two days.
Rebounding US bond yields and a positive risk tone act as a headwind for the metal.
The Fed’s dovish tilt, along with sustained USD selling, continue to lend support.

Gold price (XAU/USD) trades with a mild positive bias for the third successive day on Friday, albeit lacks follow-through and remains below a one-and-half-week high touched the previous day. Against the backdrop of Friday's stronger-than-expected monthly jobs report, the upbeat US macro data released on Thursday pointed to a resilient economy and raised doubts about an early policy easing by the Federal Reserve (Fed) in March 2024. This leads to a modest recovery in the US Treasury bond yields, which, along with the prevalent risk-on environment, bolstered by hopes for additional stimulus measures from China, turns out to be a key factor acting as a headwind for the safe-haven precious metal.

The downside, however, remains cushioned in the wake of the Fed's dovish shift earlier this week, which drags the US Dollar (USD) to over a four-month low and should benefit the non-yielding Gold price. Traders now look to the US economic docket, featuring the release of the Empire State Manufacturing Index, Industrial Production figures and the flash PMI prints for December. The data might influence the USD price dynamics and provide some impetus to the commodity. Nevertheless, the XAU/USD, for now, seems to have stalled the post-FOMC rally from the vicinity of the 50-day Simple Moving Average (SMA) support, though remains on track to register modest weekly gains.

Daily Digest Market Movers: Gold price seems poised to appreciate further amid Fed rate cut bets, bearish USD

Thursday's upbeat US macro data cast doubts over an early rate cut by the Federal Reserve, which provides some respite to the US Treasury bond yields and acts as a headwind for the Gold price amid the risk-on mood.
The US Commerce Department reported that Retail Sales rose by 0.3% in November as compared to the 0.2% fall (revised down from -0.1%) recorded in the previous month and the 0.1% decline anticipated.
Moreover, core Retail Sales, which excludes automobiles, surpassed consensus estimates pointing to a 0.1% contraction and climbed 0.2% last month, while Retail Sales Control Group increased 0.4%.
The US Labor Department, meanwhile, reported that the number of Americans filing for unemployment insurance for the first time fell to 202K last week, registering the lowest level since mid-October.
Data released from China on Friday showed Retail Sales jumped 10.1% YoY in November vs. the 7.6% previous and Industrial Production increased 6.6% YoY as against a 4.6% rise in the prior month.
Following the high-impact data, the National Bureau of Statistics (NBS) said that persistently recovery in demand is helpful for the improvement in consumer prices and that China will not see deflation.
Reuters, citing three sources with knowledge of the matter, reported that Chinese leaders agreed at an annual meeting on the economy this week to set the 2024 economic growth target at around 5.0%.
The markets, meanwhile, are still pricing in a nearly 60% chance that the Fed will begin to cut rates at its March meeting and the odds of a May rate cut currently stand at 90%.
This, along with the prevalent selling bias surrounding the US Dollar, which extends its decline for the fourth straight day and drops to over a four-month low, is seen lending support to the commodity.
Moving ahead, Friday's release of flash global PMI prints could provide some impetus to the precious metal and allow traders to grab short-term opportunities on the last day of the week.

Technical Analysis: Gold price bulls await move beyond $2,040 hurdle before placing fresh bets

From a technical perspective, failure to find acceptance above the $2,040 supply zone warrants some caution for bullish traders. That said, positive oscillators on the daily chart support prospects for a further near-term appreciating move. Hence, some follow-through buying has the potential to lift the Gold price to the next relevant hurdle near the $2,072-2,073 region. The momentum could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.

On the flip side, the $2,012-2,010 horizontal zone might now protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable and expose the 50-day SMA support, currently pegged near the $1,979-1,978 region. This is followed by the weekly low, around the $1,973-1,972 area, and the 200-day SMA, near the $1,950 zone, which if broken decisively will shift the near-term bias in favour of bearish traders.

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 weakest against the Japanese Yen.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-2.02%	-1.65%	-1.41%	-1.79%	-2.04%	-1.17%	-1.36%
EUR	1.98%		0.36%	0.59%	0.22%	-0.02%	0.83%	0.64%
GBP	1.63%	-0.37%		0.22%	-0.13%	-0.39%	0.47%	0.28%
CAD	1.40%	-0.60%	-0.24%		-0.38%	-0.61%	0.24%	0.05%
AUD	1.76%	-0.22%	0.13%	0.37%		-0.24%	0.61%	0.41%
JPY	2.02%	0.03%	0.30%	0.63%	0.24%		0.87%	0.68%
NZD	1.16%	-0.84%	-0.45%	-0.24%	-0.61%	-0.86%		-0.19%
CHF	1.33%	-0.66%	-0.31%	-0.05%	-0.44%	-0.67%	0.18%

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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