Gold price languishes near two-week low, could slide further to test 50-day SMA support

  • Gold price meets with a fresh supply on Monday and is currently placed near the post-NFP low.
  • Diminishing odds for more aggressive easing by the Fed continue to weigh on the XAU/USD.
  • A softer risk tone could help limit further losses ahead of the US inflation figures on Thursday. 

Gold price (XAU/USD) extends its intraday descent through the first half of the European session on Monday and drops back closer to over a two-week low touched in the aftermath of the upbeat US monthly employment details on Friday. The popularly known Nonfarm Payrolls (NFP) report pointed to a still resilient US labor market and forced investors to continue scaling back their expectations for more aggressive policy easing by the Federal Reserve (Fed). This, in turn, remains supportive of elevated US Treasury bond yields, which act as a tailwind for the US Dollar and drive flows away from the non-yielding yellow metal.

The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at its March policy meeting and a cumulative of five 25 basis points (bps) rate cut for 2024. This holds back the USD bulls from placing aggressive bets and could lend some support to the Gold price. Apart from this, a generally weaker risk tone should act as a tailwind for the safe-haven precious metal. Investors might also prefer to wait on the sidelines ahead of the US consumer inflation figures on Thursday. In the meantime, a scheduled speech by Atlanta Fed President Raphael Bostic will be looked upon for some impetus in the absence of relevant US macro data.

Daily Digest Market Movers: Gold price remains depressed amid elevated US bond yields

  • Investors further scale back their expectations for an imminent shift in the Federal Reserve's policy stance following the release of a robust December monthly US jobs report on Friday.
  • The US economy added 216K new jobs last week as compared to 170K expected, while the unemployment rate held steady at 3.7% vs. consensus estimates for an uptick to 3.8%.
  • Adding to this, US Factory Orders surprised to the upside and grew more than expected in November, by 2.6%, after declining 3.4% in October (revised slightly up from -3.6%).
  • Separately, the Institute for Supply Management (ISM) survey indicated that the US services sector, which accounts for more than two-thirds of the economy, slumped last month.
  • The ISM's Non-Manufacturing Index dropped to 50.6 in December – the lowest reading since May – and the employment sub-component plunged to 43.3 – the lowest since July 2020.
  • Dallas Fed President Lorie Logan noted that if the US central bank does not maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up, reversing progress.
  • This comes after Richmond Fed President Thomas Barkin last week expressed confidence that the economy is on its way to a soft landing and said that rate hikes remain on the table.
  • The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, which acts as a tailwind for the US Dollar and is seen undermining the Gold price.
  • The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at the March meeting and a cumulative of five 25 basis points (bps) rate cuts for 2024.
  • China's economic woes, along with an escalation of tensions in the Middle East, could lend some support to the safe-haven XAU/USD ahead of the US consumer inflation figures on Thursday.
  • Lebanese militant group Hezbollah sent a barrage of rockets into northern Israel in what it called a “preliminary response” to the assassination of Hamas senior leader Saleh al-Arouri on Tuesday.
  • The markets react little to an agreement between House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer on topline spending level, which breaks the deadlock to avoid a shutdown.

Technical Analysis: Gold price bears retain control, flirt with multi-week low set on Friday

From a technical perspective, any subsequent slide is likely to find some support near the $2,030 level ahead of Friday’s swing low, around the $2,024 area. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the Gold price to the 50-day Simple Moving Average (SMA), currently around the $2,012-2,011 area. This is followed by the $2,000 psychological mark, which if broken should pave the way for a further near-term depreciating move.

On the flip side, momentum beyond the $2,050 immediate hurdle might continue to confront stiff resistance near the $2,064-2,065 area ahead of the $2,077 zone. A sustained strength beyond the said hurdles might prompt a short-covering rally and allow the Gold price to aim back towards reclaiming the $2,100 round-figure mark. Some follow-through buying will negate any negative outlook and shift the near-term bias back in favour of bullish 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 Japanese Yen.

USD   0.08% 0.12% 0.07% 0.18% -0.19% 0.18% 0.12%
EUR -0.07%   0.05% 0.01% 0.12% -0.25% 0.12% 0.04%
GBP -0.10% -0.03%   -0.02% 0.09% -0.28% 0.09% 0.01%
CAD -0.07% 0.00% 0.04%   0.11% -0.24% 0.10% 0.04%
AUD -0.19% -0.10% -0.08% -0.10%   -0.33% -0.02% -0.07%
JPY 0.15% 0.26% 0.28% 0.26% 0.37%   0.37% 0.28%
NZD -0.16% -0.11% -0.08% -0.08% 0.00% -0.36%   -0.05%
CHF -0.11% -0.04% 0.01% -0.02% 0.08% -0.28% 0.08%  

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).

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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