- Gold rises as Powell underscores the need for cautious monetary policy.
- Mixed US economic data, including slightly disappointing ADP employment changes, support cautious investor sentiment.
- Fed’s Musalem keeps optionality for the December meeting.
Gold price advances during Wednesday’s North American session, sponsored by mixed US economic data. Nevertheless, the non-yielding metal remained slightly subdued as Federal Reserve (Fed) Chair Jerome Powell crossed the wires. The XAU/USD trades at $2,652, up 0.35%.
Powell said the US economy is in good shape, adding that September’s rate cut was a message to support the labor market. He said that despite showing progress, it’s premature to declare victory on inflation, and the US central bank could be cautious in setting monetary policy.
Recently, inflation has proved to be stickier than expected. The latest three readings indicate that the disinflation process has stalled. Despite ticking up a tenth, prices remain far from hitting the Fed’s 2% goal.
Other officials crossed the newswires. St. Louis Fed President Alberto Musalem suggested that the time to slow or pause rate cuts might be approaching. He noted that the labor market aligns with full employment and expressed confidence that inflation could reach the 2% target within the next two years.
Meanwhile, Richmond Fed President Thomas Barkin stated that the risks to inflation and maximum employment appear balanced.
On the data front, US ADP National Employment Change figures came a whisker lower than foreseen in November, but October was downwardly revised. S&P Global and the Institute for Supply Management (ISM) revealed that Services PMIs cooled slightly, hinting the economy remains strong but is slowing down.
Ahead this week, the US docket will feature Fed speakers, Initial Jobless Claims and Nonfarm Payrolls (NFP) figures.
Daily digest market movers: Gold price capitalizes on weak US data
- Gold prices advanced as US real yields dropped four basis points to 1.904%.
- The US 10-year Treasury bond yield falls four basis points to 4.184%.
- The US Dollar Index (DXY), which tracks the buck's performance against six currencies, stumbles 0.01% to 106.32 on the day.
- The US ADP National Employment report for November showed private hiring increased by 145K, falling short of the 150K forecast and the downwardly revised October figure of 184K, previously 238K.
- November's ISM Services PMI dropped to 52.1 from 56, underperforming the expected 55.7, while the S&P Global Services PMI also fell, declining to 56.1 from 57 and missing projections.
- US Durable Goods Orders rose by 0.3% MoM in October, slightly improving from the 0.2% reported previously.
- ADP data and the latest Job Openings & Labor Turnover Survey (JOLTS) report on Tuesday confirm that the labor market remains solid. Fed policymakers, who shifted their dual-mandate priority towards maximum employment, leaving aside price stability, can be relieved that the economy remains solid.
- The CME FedWatch Tool indicates a 79% probability of a 25-basis-point rate cut at the Federal Reserve's December meeting, while Chicago Board of Trade data points to 19 bps of easing by the end of 2024.
Technical outlook: Gold price consolidates within $2,600 and the 50-day SMA
Gold remains upwardly biased yet remains subdued between $2,600 to $2,650 for the last seven days. It is capped on the upside by the 50-day Simple Moving Average (SMA) at $2,668; if it's broken, this would expose $2,700.
On further strength, bulls can test the year-to-date (YTD) high at $2,790. Conversely, bears stepping in could drag XAU/USD to $2,600, followed by the 100-day SMA at $2,578.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD consolidates near two-week high, looks to US NFP for fresh impetus
AUD/USD holds steady around the 0.6335 area during the Asian session on Friday as traders now await the US NFP report. Bets that the Fed will cut rates further amid concerns over failing US economic growth keep the USD depressed near a multi-month low and act as a tailwind for spot prices, though tariff jitters warrant caution for bulls.
USD/JPY seems vulnerable amid divergent Fed-BoJ expectations; US NFP awaited
USD/JPY languishes near its lowest level since October touched on Thursday amid a bearish USD, led by bets that the Fed could cut rates multiple times in 2025 amid slowing US economic growth. Moreover, the hawkish sentiment surrounding the BoJ's policy outlook underpins the JPY and validates the negative bias for the pair.
Gold price remains depressed ahead of US NFP; trade jitters to limit losses
Gold price trades with negative bias for the second straight day, though a combination of factors continues to act as a tailwind ahead of the crucial US NFP report later this Friday. Rising trade tensions continue to weigh on investors' sentiment.
Crypto AI Tokens: Why FET, NEAR and RNDR could outperform BTC after White House Summit
The White House Crypto Summit is scheduled to hold on Friday. Rather than double-down on BTC, sector-wide price trends show that investors are leaning towards Crypto AI altcoins.
Make Europe great again? Germany’s fiscal shift is redefining the European investment playbook
For years, Europe has been synonymous with slow growth, fiscal austerity, and an overreliance on monetary policy to keep its economic engine running. But a major shift is now underway. Germany, long the poster child of fiscal discipline, is cracking open the purse strings, and the ripple effects could be huge.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.