Gold price attracts some haven flow, stronger USD cap gains ahead of Fed decision

  • Gold price turns positive for the third straight day, though the upside potential seems limited. 
  • Geopolitical risks and China’s economic woes continue to lend support to the safe-haven metal.
  • The emergence of some USD buying to cap any further gains ahead of the FOMC policy decision.

Gold price (XAU/USD) attracts some dip-buying during the early part of the European session on Wednesday and turns positive for the third successive day, though any meaningful upside still seems elusive. A further decline in the US Treasury bond yields, along with persistent worries about the deepening Middle East conflict and China's economic woes, turn out to be key factors lending some support to the safe-haven precious metal. That said, a modest pickup in the US Dollar (USD) demand might cap the upside for the commodity.

Traders might also refrain from placing directional bets and prefer to wait on the sidelines ahead of the crucial FOMC policy decision, due later today. The Federal Reserve (Fed) is widely expected to keep its key interest rates unchanged. Hence, the focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference. Investors will look for cues about the timing of the first interest rate cut, which will drive the USD demand and provide a fresh impetus to the Gold price. 

Daily Digest Market Movers: Gold price benefits from geopolitical risks, stronger USD might cap gains

  • The yield on the benchmark 10-year US government bond languishes near the 4.0% threshold, which, along with geopolitical risks and China's economic woes, lend support to the Gold price.
  • China's National Bureau of Statistics reported that the official Manufacturing PMI improved slightly to 49.2 in January, though remained in contraction territory for the fourth straight month.
  • This points to a weak domestic recovery and poor external demand, though, to a larger extent, was offset by a further rise in the Non-Manufacturing PMI to 50.7 in January from the 50.4 previous.
  • The US Dollar regains positive traction amid diminishing odds for a more aggressive policy easing by the Federal Reserve and should keep a lid on any meaningful upside for the XAU/SUD. 
  • The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics showed that US job openings unexpectedly increased to 9.02 million in December.
  • The Conference Board's US Consumer Confidence Index improved for the third consecutive month and jumped to its highest level since December 2021, to 114.8 in January from the 108.0 previous.
  • Adding to this, the International Monetary Fund upgraded its forecast for the US economic growth to 2.1% for 2024, versus the 1.5% rise expected in October, and then ease to 1.7% in 2025.
  • This suggested that the US economy is still in good shape for the Fed to start cutting interest rates in the first quarter, which, in turn, acts as a tailwind for the buck and weighs on the metal.
  • Investors now look to the highly-anticipated FOMC policy decision for cues about the first interest rate cut, which, in turn, will provide a fresh directional impetus to the non-yielding yellow metal.
  • Heading into the key central bank event risk, traders will confront the release of the ADP report on private-sector employment and Chicago PMI later during the North American session.

Technical Analysis: Gold price flirts with $2,040-2,042 static barrier, remains below two-week top set on Tuesday

The overnight failure to find acceptance above the $2,040-2,042 supply zone and some follow-through selling below the 50-day Simple Moving Average (SMA), currently around the $2,030-2,029 region, will expose the $2,012-2,010 support zone. This is followed by the $2,000 psychological mark, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. The Gold price might then accelerate the decline towards the 100-day SMA, currently near the $1,979-1,978 area, before eventually dropping to the very important 200-day SMA, near the $1,964 region.

On the flip side, bulls need to wait for acceptance above the $2,040-2,042 static resistance and a subsequent move beyond the overnight swing high, around the $2,048-2,049 region, before placing fresh bets. Given that oscillators on the daily chart have just started moving into the positive territory, the Gold price could then accelerate the positive move towards the next relevant hurdle near the $2,077 zone. The momentum could extend further and allow bullish traders to aim back towards reclaiming the $2,100 round-figure mark.

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 .

USD   0.23% 0.14% 0.12% 0.39% 0.18% 0.25% 0.17%
EUR -0.23%   -0.09% -0.11% 0.18% -0.05% 0.02% -0.05%
GBP -0.14% 0.09%   -0.01% 0.25% 0.05% 0.10% 0.04%
CAD -0.12% 0.11% 0.00%   0.27% 0.06% 0.13% 0.05%
AUD -0.39% -0.16% -0.24% -0.27%   -0.21% -0.13% -0.22%
JPY -0.18% 0.05% -0.06% -0.06% 0.24%   0.05% -0.01%
NZD -0.24% 0.02% -0.10% -0.13% 0.15% -0.08%   -0.07%
CHF -0.16% 0.06% -0.04% -0.05% 0.21% 0.01% 0.07%  

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).

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: 01/31/2024 19:00:00 GMT

Frequency: Irregular

Source: Federal Reserve

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