Gold price attracts some sellers on hawkish Fed-inspired USD strength
Most recent article: Gold tracks other commodities lower
- Gold price kicks off the new week on a weaker note amid the Fed’s hawkish outlook.
- Geopolitical risks and political uncertainty could lend support to the safe-haven metal.
- The recent repeated failures near the 50-day SMA underpin prospects for deeper losses.
Gold price (XAU/USD) meets with a fresh supply during the early European trading hours and erodes a part of Friday's positive move in the wake of the Federal Reserve's (Fed) hawkish surprise. In fact, policymakers lowered their forecast for the number of rate cuts this year to one from three projected in March. This remains supportive of elevated US Treasury bond yields, which allows the US Dollar (USD) to stand tall near its highest level since early May touched on Friday and is seen as a key factor driving flows away from the non-yielding yellow metal.
That said, the possibility of two Fed rate cuts in 2024 remains on the table amid signs of easing inflationary pressure in the US. This, in turn, is holding back the USD bulls from placing aggressive bets and lending some support to the Gold price. Apart from this, persistent geopolitical tensions in the Middle East, along with political uncertainty in Europe, should help limit losses for the safe-haven metal. Hence, it will be prudent to wait for some follow-through selling before positioning for the resumption of the XAU/USD's pullback from the all-time peak touched in May.
Daily Digest Market Movers: Gold price bulls remain on the defensive amid Fed rate jitters, downside seems limited
- The Federal Reserve adopted a more hawkish stance at the end of the June policy meeting, which continues to act as a tailwind for the US Dollar and is seen undermining the non-yielding Gold price.
- That said, weaker US consumer and producer prices data released last week indicated that inflation is subsiding, which keeps hopes alive for two Fed rate cuts in 2024, in September and in December.
- Adding to this, the Labor Department reported on Friday that US import prices unexpectedly declined for the first time in five months in May, providing another boost to the domestic inflation outlook.
- Furthermore, the University of Michigan survey showed that consumer sentiment touched its lowest level in seven months in June and the index fell to 65.6 from 69.1 in May, missing consensus estimates.
- Cleveland Federal President Loretta Mester said on Friday that we are starting to see inflation move down again after stalling and that it is important not to wait too long to start cutting interest rates.
- Mester, in an interview with CNBC, added that she would like to see a longer run of good-looking inflation data and that the path towards the Fed's 2.0% inflation goal may take longer than expected.
- Chicago Fed President Austan Goolsbee noted that he still wants to see further progress on inflation and that if inflation behaves as it did in the first quarter, we will have a hard time cutting rates.
- Minneapolis Fed President Neel Kashkari said on Sunday that we need to see more evidence to convince inflation is heading to 2% and that the central bank will wait until December to cut rates.
- This raises doubts about the Fed's rate-cut path, which might cap any meaningful appreciating move for the buck and lend some support to the XAU/USD amid geopolitical risks and political uncertainty.
Technical Analysis: Gold price could accelerate the downfall once the $2,300 mark is broken decisively
From a technical perspective, traders need to wait for a sustained break and acceptance below the $2,300 mark before placing fresh bearish bets around the Gold price. Hence, it will be prudent to wait for some follow-through selling below the $2,285 horizontal support before positioning for any further losses. The commodity might then accelerate the fall towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 round figure.
On the flip side, the 50-day Simple Moving Average (SMA) support breakpoint, currently pegged near the $2,344-2,345 region, is likely to act as an immediate strong barrier. This is followed by the $2,360-2,362 supply zone, which, if cleared decisively, might prompt some short-covering rally and lift the Gold price to the $2,387-2,388 intermediate hurdle en route to the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and allow the XAU/USD to challenge the all-time peak, around the $2,450 region touched in May.
Daily Digest Market Movers: Gold price is pressured by the hawkish Fed-inspired USD strength
- The Federal Reserve adopted a more hawkish stance at the end of the June policy meeting, which continues to act as a tailwind for the US Dollar and is seen undermining the non-yielding Gold price.
- That said, weaker US consumer and producer prices data released last week indicated that inflation is subsiding, which keeps hopes alive for two Fed rate cuts in 2024, in September and in December.
- Adding to this, the Labor Department reported on Friday that US import prices unexpectedly declined for the first time in five months in May, providing another boost to the domestic inflation outlook.
- Furthermore, the University of Michigan survey showed that consumer sentiment touched its lowest level in seven months in June and the index fell to 65.6 from 69.1 in May, missing consensus estimates.
- Cleveland Federal President Loretta Mester said on Friday that we are starting to see inflation move down again after stalling and that it is important not to wait too long to start cutting interest rates.
- Mester, in an interview with CNBC, added that she would like to see a longer run of good-looking inflation data and that the path towards the Fed's 2.0% inflation goal may take longer than expected.
- Chicago Fed President Austan Goolsbee noted that he still wants to see further progress on inflation and that if inflation behaves as it did in the first quarter, we will have a hard time cutting rates.
- Minneapolis Fed President Neel Kashkari said on Sunday that we need to see more evidence to convince inflation is heading to 2% and that the central bank will wait until December to cut rates.
- This raises doubts about the Fed's rate-cut path, which might cap any meaningful appreciating move for the buck and lend some support to the XAU/USD amid geopolitical risks and political uncertainty.
Technical Analysis: Gold price seems vulnerable while below 50-day SMA support breakpoint
From a technical perspective, traders need to wait for a sustained break and acceptance below the $2,300 mark before placing fresh bearish bets around the Gold price. Hence, it will be prudent to wait for some follow-through selling below the $2,285 horizontal support before positioning for any further losses. The commodity might then accelerate the fall towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 round figure.
On the flip side, the 50-day Simple Moving Average (SMA) support breakpoint, currently pegged near the $2,344-2,345 region, is likely to act as an immediate strong barrier. This is followed by the $2,360-2,362 supply zone, which if cleared decisively might prompt some short-covering rally and lift the Gold price to the $2,387-2,388 intermediate hurdle en route to the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and allow the XAU/USD to challenge the all-time peak, around the $2,450 region touched in May.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.75% | 0.45% | -0.13% | -0.22% | 0.39% | -0.13% | -0.62% | |
| EUR | -0.75% | -0.30% | -0.89% | -0.98% | -0.37% | -0.88% | -1.38% | |
| GBP | -0.45% | 0.31% | -0.58% | -0.67% | -0.05% | -0.59% | -1.06% | |
| CAD | 0.13% | 0.88% | 0.57% | -0.09% | 0.53% | 0.01% | -0.50% | |
| AUD | 0.26% | 1.00% | 0.71% | 0.09% | 0.63% | 0.12% | -0.37% | |
| JPY | -0.39% | 0.37% | 0.06% | -0.51% | -0.61% | -0.53% | -1.01% | |
| NZD | 0.13% | 0.87% | 0.58% | 0.00% | -0.10% | 0.52% | -0.50% | |
| CHF | 0.62% | 1.36% | 1.06% | 0.50% | 0.40% | 1.01% | 0.49% |
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
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
