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Gold price rebounds from over one-week low amid subdued USD demand, softer risk tone

  • Gold price remains depressed for the third successive day and drops to over one-week trough. 
  • Expectations that the Fed will keep rates higher for longer continue to undermine the XAU/USD.
  • Geopolitical risks could help limit losses ahead of the key FOMC policy decision on Wednesday.

Gold price (XAU/USD) stages a modest recovery from over a one-week low touched earlier this Monday, though remains in the red through the first half of the European session. The US Dollar (USD) continues with its struggle to gain any meaningful traction amid the uncertainty over the Federal Reserve's (Fed) rate-cut path. This, along with a softer risk tone and geopolitical risks, turn out to be key factors lending some support to the safe-haven precious metal.

The upside, however, remains capped in the wake of growing acceptance that the Fed will stick to its higher-for-longer interest rates narrative to bring down inflation. The hawkish outlook remains supportive of elevated US Treasury bond yields and might act as a headwind for the non-yielding yellow metal. Traders might also refrain from placing aggressive directional bets ahead of the highly-anticipated FOMC decision, scheduled to be announced on Wednesday. 

Daily Digest Market Movers: Gold price traders prefer to wait on the sidelines amid mixed fundamental cues

  • Data released last week from the US pointed to some stickiness in inflation and might force the Federal Reserve to keep rates elevated, which, in turn, is seen weighing on the non-yielding Gold price.
  • The University of Michigan's preliminary survey showed on Friday that one-year and five-year inflation expectations were little changed in March, while the US Consumer Sentiment Index eased to 76.5.
  • The CME Group’s FedWatch Tool, meanwhile, indicates that the possibility of an interest rate cut at the June policy meeting stands at around 60% and holds back the USD bulls from placing fresh bets.
  • Geopolitical risks remain elevated on the back of the protracted Russia-Ukraine war and conflicts in the Middle East, which is seen lending additional support to the perceived safe-haven precious metal.
  • Ukraine last week stepped up drone strikes on Russian oil refineries, while Israeli Prime Minister Benjamin Netanyahu confirmed that he will proceed with plans to push into Gaza's Rafah enclave.
  • Traders might refrain from placing aggressive directional bets and now look forward to the outcome of the highly anticipated FOMC monetary policy meeting on Wednesday for some meaningful impetus.

Technical Analysis: Gold price bounces off the $2,145-2,144 pivotal support, upside potential seems limited

From a technical perspective, any further decline is likely to find some support near the $2,145-2,144 region, below which the Gold price could accelerate the fall to the next relevant support near the $2,128-2,127 zone. The corrective slide could extend further towards the $2,100 round figure, which should act as a strong base for the XAU/USD.

On the flip side, the $2,175-2,176 region now seems to have emerged as an immediate strong barrier, which if cleared should allow the Gold price to challenge the record peak, around the $2,195 area touched last week. Some follow-through buying beyond the $2,200 mark will set the stage for the resumption of the uptrend witnessed since the beginning of this month.

Economic Indicator

United States Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

Read more.

Next release: 03/20/2024 18:00:00 GMT

Frequency: Irregular

Source: Federal Reserve

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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