- Gold price gains strong positive traction on Tuesday and climbs to over a two-week top.
- Dovish Fed expectations, sliding US bond yields and a weaker USD remain supportive.
- A positive risk tone keeps a lid on any further gains ahead of the crucial FOMC minutes.
Gold price (XAU/USD) catches aggressive bids on Tuesday and climbs to over a two-week high during the early part of the European session, albeit lacks follow-through. The Federal Reserve (Fed) is not expected to raise interest rates any further, instead, the markets have been pricing in a series of rate cuts in 2024. This leads to a further decline in the US Treasury bond yields and drags the US Dollar (USD) to its lowest level since August 31, which, in turn, acts as a tailwind for the precious metal.
That said, the underlying bullish tone around the equity markets, bolstered by hopes for more stimulus from China, keeps a lid on any further gains for the safe-haven Gold price. Traders also seem reluctant to place aggressive bullish bets and prefer to wait for the FOMC meeting minutes, due for release later during the US session. Investors will get insight into policymakers' views on whether the Fed should raise interest rates again, which will influence the USD and provide a fresh impetus to the XAU/USD.
Daily Digest Market Movers: Gold price remains well supported by dovish Fed expectations and a weaker USD
- The US Dollar selling remains unabated in the wake of dovish Federal Reserve expectations and assisted the Gold price to regain strong positive traction on Tuesday.
- Investors now seem convinced that the Fed has completed its interest rate-hiking cycle and are looking for cues on when the central bank could begin easing its monetary policy.
- The rate-sensitive 2-year US government bond yield remains below the current 5.25-to-5.50% Fed funds target, suggesting that momentum in favour of rate cuts is building.
- The CME’s Fedwatch tool points to a roughly 30% chance that the Fed will start cutting rates as soon as March 2024 and a nearly 100 bps of cumulative easing by the year-end.
- The benchmark US 10-year Treasury yield drops to a fresh two-month low and undermines USD, offsetting the upbeat market mood and benefitting the non-yielding yellow metal.
- Investors turned optimistic after Chinese officials vowed to roll out more policy support for the country’s beleaguered real estate sector and drive stronger momentum for growth.
- China’s new finance minister Lan Fo’an said that the country would boost budget spending to support the post-pandemic recovery in the world’s second-largest economy.
- Fed officials, meanwhile, have not ruled out the possibility that more interest rate hikes could be needed should a change in economic data require it.
- Richmond Fed President Thomas Barkin said on Monday that inflation is likely to remain stubborn and force the central bank to keep rates higher for longer than investors currently anticipate.
- This, in turn, could act as a headwind for the precious metal as traders look to the FOMC minutes for fresh cues about the Fed's future policy action and some meaningful impetus.
Technical Analysis: Gold price bulls now await a move beyond the $2,000 psycholgocial mark
From a technical perspective, some follow-through buying beyond last week's swing high, around the $1,993 area, should allow the Gold price to reclaim the $2,000 psychological mark. The momentum could get extended further towards retesting a multi-month peak, around the $2,009-2,010 area touched in October. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent goodish rebound from levels just below the 200-day Simple Moving Average (SMA).
On the flip side, the $1,978-1,977 region now seems to protect the immediate downside ahead of the overnight swing low, around the $1,965 zone. Failure to defend the said support levels could make the Gold price vulnerable to accelerate the slide back towards challenging the 200-day SMA, currently near the $1,938-1,937 zone. This is followed by the 100- and the 50-day SMAs confluence, around the $1,930-1,929 area, which if broken decisively will shift the near-term bias in favour of bearish traders and prompt some technical selling.
(This story was corrected on November 21 at 08:05 GMT to say, in the technical analysis section, that a move beyond the multi-month peak will be seen as a fresh trigger for bullish traders, not bearish).
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.
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).
Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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