Gold price extends its consolidative price move despite softer USD and cautious market mood
- Gold price attracts some dip-buying on Monday amid a modest US Dollar downtick.
- Geopolitical tensions and looming recession risks also benefit the safe-haven metal.
- The prevalent risk-on environment is seen acting as a headwind and capping gains.
Gold price (XAU/USD) attracts some dip-buying on the first day of a new week and reverses a part of Friday's downfall from the vicinity of the $2,050 area. The uptick, however, lacks a bullish conviction as traders now look to the key US inflation reading – the core PCE Price Index – for cues about the timing of when the Federal Reserve (Fed) will begin easing its policy. This, in turn, will help determine the next leg of a directional move for the non-yielding yellow metal.
Meanwhile, the Fed last week signalled an end to its monetary policy tightening cycle and pencilled in a cumulative of 75 basis points (bps) rate cuts in 2024. This keeps a lid on the goodish US Dollar (USD) bounce from over a four-month low touched on Friday and turns out to be a key factor acting as a tailwind for the Gold price. Apart from this, geopolitical risks and worries about a deeper economic downturn, particularly in China and the Eurozone, benefit the safe-haven metal.
That said, a duo of Federal Reserve (Fed) officials on Friday tried to push back against market bets for early interest rate cuts. This, in turn, is holding back traders from placing fresh bullish bets and positioning for any further appreciating move in the Gold price. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD is to the upside and any meaningful corrective decline might still be seen as a buying opportunity.
Daily Digest Market Movers: Gold price bulls await a key US inflation reading before placing fresh bets
- New York Federal Reserve President John Williams, in an interview with CNBC, said on Friday that we aren't really talking about rate cuts right now and it's premature to speculate about them.
- William added that the economic data can move in surprising ways and the central bank needs to be ready to tighten policy further if the progress on inflation were to stall or reverse.
- Separately, Atlanta Fed President Raphael Bostic echoed the view, saying that rate cuts were not an imminent thing and that the first cuts could come sometime in the third quarter of 2024.
- The markets, however, seem convinced that the Fed will ease its policy by the first half of 2024, which caps the US Dollar bounce from over a four-month low and lends support to the Gold price.
- The flash PMI prints released on Friday showed that business activity in Germany deteriorated during December, increasing the risk of a recession in the Eurozone's largest economy.
- North Korea fired at least one unidentified type of ballistic missile on Monday, just hours after a separate launch of a short-range missile late Sunday night.
- China's state media Xinhua, citing a government readout, reported that the economy is expected to see more favourable conditions and more opportunities than challenges in 2024.
- "China's prices are low, central government debt levels are not high, and conditions are in place to strengthen implementation of monetary and fiscal policies," Xinhua added.
- This, along with the Fed's dovish pivot, remains supportive of the underlying bullish sentiment across the global equity markets and keeps a lid on further gains for the safe-haven precious metal.
Technical Analysis: Gold price struggles to build on modest intraday uptick, bullish bias remains
From a technical perspective, any subsequent move up is likely to confront stiff resistance near the $2,040 supply zone, above which the Gold price could aim to retest last week's swing high, around the $2,049-2,050 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for a move towards the next relevant barrier near the $2,072-2,073 area. The momentum could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.
On the flip side, the $2,015-2,010 horizontal resistance breakpoint might continue to protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable to challenge the 50-day SMA support, currently pegged near the $1,982-1,981 region. This is followed by last week's swing low, around the $1,973 area, and the 200-day SMA, near the $1,956-1,955 zone, which if broken decisively will shift the near-term bias in favour of bearish traders.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.19% | -0.02% | -0.28% | -0.14% | -0.50% | -0.14% | |
| EUR | 0.15% | -0.03% | 0.13% | -0.13% | 0.02% | -0.34% | 0.02% | |
| GBP | 0.18% | 0.03% | 0.17% | -0.09% | 0.05% | -0.31% | 0.05% | |
| CAD | 0.02% | -0.14% | -0.17% | -0.26% | -0.12% | -0.48% | -0.12% | |
| AUD | 0.27% | 0.13% | 0.11% | 0.27% | 0.16% | -0.21% | 0.16% | |
| JPY | 0.13% | -0.02% | -0.05% | 0.12% | -0.15% | -0.37% | -0.01% | |
| NZD | 0.50% | 0.34% | 0.31% | 0.47% | 0.21% | 0.36% | 0.36% | |
| CHF | 0.14% | -0.01% | -0.04% | 0.12% | -0.14% | 0.00% | -0.36% |
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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
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