- Gold price recovers from weekly lows, struggling near $2,650 ahead of the Fed policy verdict.
- The US Dollar stays defensive as Treasury bond yields pause amid market caution.
- The daily technical setup suggests that Gold price remains exposed to downside risks.
Despite the latest uptick, Gold price remains in a familiar range near $2,650 early Wednesday. Gold price appears to lack bullish commitment in the lead-up to the US Federal Reserve (Fed) showdown.
Gold price looks to Fed decision and Powell’s presser
Gold price has failed to sustain the upside attempts so far this week, giving into the bearish pressures on Tuesday to hit the lowest level in six days at $2,633. The unabated buying interest in US Treasury bond yields mainly sponsored the downturn in Gold price. Markets continued to believe that the Fed could pause its easing cycle early next year, especially after robust US Retail Sales data.
US Retail Sales increased 0.7% in November, outpacing expectations of a 0.5% growth in the reported period. However, the US Treasury bond yields quickly pulled back due to worsening risk sentiment on global markets. Traders turned cautious and refrained from placing bets on risk assets ahead of the critical Fed interest rate decision. This helped Gold price to limit losses and regain $2,640 at the close.
Markets remain risk-averse early Wednesday, with traders non-committal on their US Dollar positions, leaving Gold price gyrating in a narrow band. The next direction in Gold price now remains at the mercy of the language in the Fed’s policy statements, its economic projections and Chairman Jerome Powell’s press conference.
If the Summary of Economic Projections (SEP), the so-called ‘Dot-plot’ chart, points to fewer rate cuts next year than previously forecast, the US Dollar will likely see a fresh leg higher at the expense of the non-interest-bearing Gold price. Powell’s comments will also be closely scrutinised for the timing of the next rate cut if he expresses caution about inflation under Donald Trump’s presidency.
Risks appears skewed to the downside in Gold price, justified by the hawkish Fed expectations and the daily technical setup.
Gold price technical analysis: Daily chart
The daily chart shows that Gold price surrendered the 21-day Simple Moving Average (SMA) at $2,655 once again.
The 14-day Relative Strength Index (RSI) is trading flat but below the 50 level, suggesting that sellers could retain control going forward.
The immediate resistance aligns at the 21-day SMA at $2,655. However, Gold buyers need to find acceptance above the 50-day SMA at $2,672 to initiate a meaningful upside toward the $2,700 level.
Further up, Gold price could revisit the multi-week high of $2,726.
On the downside, the weekly low of $2,633 could offer some support, below which the December 6 low of $2,613 will be tested.
Gold sellers will then target the $2,600 area, where the 100-day SMA coincides with the November 26 low.
Gold FAQs
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.
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.
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.
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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