- Gold price pulls back from a one-month high amid the emergence of some USD dip-buying.
- Israel-Hamas ceasefire deal exerts additional pressure on the safe-haven XAU/USD pair.
- Bets for additional rate cuts by the Fed should cap the buck and support the precious metal.
Gold price (XAU/USD) retains its negative bias through the first half of the European session on Friday, though it lacks follow-through selling and remains close to a one-month peak touched the previous day. The US Dollar (USD) regains positive traction and for now, seems to have snapped a three-day losing streak amid the growing acceptance that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month This, along with a generally positive tone around the equity markets, turns out to be a key factor undermining the precious metal.
Meanwhile, expectations that softer inflation in the US will allow the Federal Reserve (Fed) to cut interest rates further this year should keep a lid on any further USD appreciation and lend support to the non-yielding Gold price. Furthermore, uncertainties surrounding US President-elect Donald Trump's trade policies and tariff plans should contribute to limiting losses for the safe-haven bullion. Nevertheless, the XAU/USD remains on track to register gains for the third straight day as traders now look to the US macro data for a fresh impetus.
Gold price sticks to modest intraday losses amid modest USD strength
- US data released this week pointed to signs of abating inflation and fueled speculations that the Federal Reserve will cut rates twice this year, which, in turn, benefitted the non-yielding Gold price.
- Adding to this, Fed Governor Christopher Waller said on Thursday that inflation is likely to continue to ease and three or four rate cuts are still possible this year if US economic data weakens further.
- The outlook for the Fed's rate cuts this year led to a further decline in the US Treasury bond yields and kept the US Dollar close to a one-week low, lending additional support to the XAU/USD.
- Meanwhile, a report published by the US Commerce Department showed that Retail Sales increased 0.4% in December and the previous month's reading was also revised higher to show a 0.8% gain.
- Furthermore, the Philly Fed's Manufacturing Index surpassed even the most optimistic estimates and surged to the highest level since April 2021, to 44.3 this month from a revised -10.9 in December.
- Separately, the US Labor Department reported that Jobless Claims – a key indicator of the health of the U.S. labor market – rose from 203K previous to 217K during the week ending January 10.
- The data reaffirmed expectations that the Fed will pause its rate cycle later this month amid worries that US President-elect Donald Trump's policies will stoke inflation.
- Israeli Prime Minister Benjamin Netanyahu announced on Friday that a ceasefire deal that would pause 15 months of war with Hamas and release hostages held in Gaza has been reached.
- Friday's US economic docket features the release of Building Permits, Housing Starts and Industrial Production figures, which might influence the USD and the precious metal.
Gold price seems poised to climb further, move beyond $2,720 hurdle awaited
From a technical perspective, positive oscillators on the daily chart favor bullish traders and support prospects for additional gains. That said, it will still be prudent to wait for sustained strength and acceptance above the $2,715-2,720 supply zone before placing fresh bullish bets. The Gold price might then climb to the $2,745 intermediate hurdle en route to the $2,760-2,762 area, before aiming to challenge the all-time peak, around the $2,790 region touched in October 2024.
On the flip side, any corrective pullback now seems to find decent support near the $2,700-2,690 area. A further decline could be seen as a buying opportunity and remain limited near the $2,662-2,660 region. The latter should act as a pivotal point, below which the Gold price could fall to the $2,635 zone en route to the $2,650 confluence – comprising the 100-day Exponential Moving Average (EMA) and a short-term ascending trend-line extending from the November swing low.
Fed FAQs
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.
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.
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.
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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