Gold price edges higher on Fed officials' dovish remarks; eyes US PPI and FOMC minutes
- Gold price trades with modest intraday gains during the early European session on Wednesday.
- Reduced bets for more interest rate hikes by the Fed and geopolitical tensions lend some support.
- Traders look for cues about the Fed’s next policy move before placing aggressive directional bets.
Gold price (XAU/USD) seesawed between tepid gains/minor losses on Tuesday and consolidated its strong recovery gains from the $1,810 area, or a seven-month low touched last week. The precious metal, however, manages to hold above the $1,850 level and trades with a mild positive bias through the early part of the European session on Wednesday.
Bulls, however, might refrain from placing aggressive bets around the Gold price and prefer to wait for fresh cues about the Federal Reserve's (Fed) future rate-hike path. The United States (US) Nonfarm Payrolls (NFP) report released last Friday showed that wage growth remained moderate in September and eased inflationary concerns. This, along with recent dovish remarks by several Fed officials, supports prospects for an eventual shift in the central bank's policy stance.
Furthermore, the Israel-Gaza conflict is seen lending some support to the safe-haven Gold price. The markets, meanwhile, are still pricing in the possibility of at least one rate hike by the end of this year. This, along with a generally positive risk tone and a modest US Dollar (USD) uptick, might cap further gains for the precious metal. Wednesday's release of the US Producer Price Index (PPI) and the FOMC minutes might provide some impetus ahead of the US CPI on Thursday.
Daily Digest Market Movers: Gold price edges higher on declining US bond yields and a softer USD
- Gold price continues to draw support from reduced bets for further interest rate hikes by the Federal Reserve and geopolitical tensions in the Middle East.
- Atlanta Fed President Raphael Bostic said on Tuesday that the US central bank does not need to raise rates any further to get inflation back to the 2% target.
- Minneapolis Fed President Neel Kashkari added that the recent rise in long-term Treasury bond yields could aid the central bank in its battle against inflation.
- The repricing of the Fed's rate-hike path leads to a further decline in the US bond yields and continues to weigh the US Dollar (USD), benefitting the XAU/USD.
- Fed's Daly said that the central bank has more work to do and that inflation is still high, leaving the door open for further policy tightening by the year-end.
- The expansion of the Israel-Gaza conflict to the wider Middle East would push Crude Oil prices higher and complicate the Fed's effort to reduce inflation.
- This might force the US central bank to stick to its hawkish stance and add another layer of complexity, making a soft landing more difficult to achieve.
- Investors now look to the US PPI and the FOMC minutes for cues about the Fed’s future rate-hike path ahead of the consumer inflation figures on Thursday.
Technical Analysis: Gold price flirts with a near two-week high, around $1,965 touched on Tuesday
From a technical perspective, momentum beyond the overnight swing high, around the $1,865-1,866 region, has the potential to lift the XAU/USD to the next relevant hurdle near the $1,885 region. This is closely followed by the $1,900 round figure, which nears the 50-day Simple Moving Average (SMA) and should now act as a key pivotal point. Some follow-through buying should allow the Gold price to climb further towards testing the 200-day SMA, currently pegged near the $1,928-1,930 region.
On the flip side, the $1,850 level might continue to protect the immediate downside ahead of a multi-day-old trading range resistance breakpoint, around the $1,835-1,833 region. Failure to defend the said support levels might prompt some technical selling and drag the Gold price to the $1,820 support en route to the multi-month low, around the $1,810 zone. A convincing break below the latter will validate a bearish death cross on the daily chart, wherein the 50-day SMA is holding well below the 200-day SMA, and pave the way for a further drop.
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 Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.05% | 0.02% | 0.00% | 0.09% | 0.13% | 0.21% | 0.02% | |
| EUR | 0.05% | 0.07% | 0.07% | 0.14% | 0.17% | 0.24% | 0.07% | |
| GBP | -0.03% | -0.08% | -0.02% | 0.04% | 0.12% | 0.20% | 0.00% | |
| CAD | -0.01% | -0.06% | 0.03% | 0.07% | 0.11% | 0.19% | 0.02% | |
| AUD | -0.09% | -0.13% | -0.04% | -0.07% | 0.03% | 0.10% | -0.05% | |
| JPY | -0.12% | -0.16% | -0.10% | -0.12% | -0.04% | 0.07% | -0.10% | |
| NZD | -0.19% | -0.25% | -0.18% | -0.19% | -0.10% | -0.08% | -0.18% | |
| CHF | -0.05% | -0.06% | -0.02% | -0.01% | 0.04% | 0.09% | 0.13% |
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).
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
