Gold holds near $4,080, capped by hawkish Fed ahead of NFP data

Gold holds near $4,080 as US Dollar recovery caps upside, with traders expecting the Fed to keep rates unchanged next month.
DXY rises to 99.47 as hawkish Fed commentary pressures Bullion, keeping XAU/USD contained within the $4,000–$4,050 range.
Focus shifts to FOMC minutes on Wednesday and the first post-shutdown NFP release due Thursday.

Christian Borjon Valencia FXStreet

Gold (XAU/USD) trades choppy during Monday’s session as market participants now expect the Federal Reserve (Fed) will keep rates unchanged at the December meeting, while they also wait for the release of the first tranche of US economic data this week.

XAU/USD trades flat as markets price less than 50% chance of a December rate cut and await NFP and FOMC minutes

At the time of writing, XAU/USD trades at $4,080, virtually unchanged. The Greenback’s recovery is sponsored by Federal Reserve officials striking hawkish comments. Hence, money markets had priced in a less than 50% chance of a 25-basis-point (bps) rate reduction at the December meeting.

Consequently, the US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, is up 0.20% at 99.47. This makes Bullion prices more expensive for foreign buyers; hence, Gold could continue to remain trading within the $4,000-$4,050 range ahead of the release of US economic data.

Ahead in the week, the Federal Open Market Committee (FOMC) will reveal its minutes on Wednesday. The US Bureau of Labor Statistics (BLS) will unveil September’s Nonfarm Payrolls figures on Thursday.

Daily market movers: Gold falls amid strong US Dollar

Conversely, US Treasury yields are rising, with the 10-year US Treasury note yield down one and a half basis points to 4.133%. US real yields — which correlate inversely to Gold prices – are also down nearly two bps to 1.852%.
Fed Vice-Chair Philip Jefferson crossed the wires, said that upside risks to inflation have likely declined, opposite to downside risks to the labor market. He said that companies are reluctant to hire or fire and added that the current monetary policy is somewhat restrictive.
Money market players had priced in a more hawkish Fed, as data from the CME FedWatch Tool shows odds at 43% for a 25-basispoint cut at the December meeting. This means that the chances for holding rates stand at 57%.

Technical outlook: Gold hovers around $4,050

Gold’s broader uptrend remains intact, with the metal rebounding at around the 20-day Simple Moving Average (SMA) at $4,050. If XAU/USD closes above that level, it could push XAU/USD towards $4,100 ahead of testing the $4,200 mark.

However, failure to hold above $4,050 would leave Gold vulnerable to fall towards $4,000 before potentially challenging the October 28 low near $3,886.

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 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.

Author

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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