Gold price flat-lines as traders seem reluctant amid Fed’s cautious rate cut approach

  • Gold price fails to build on overnight positive move amid hawkish Fed expectations.
  • A modest downtick in the US bond yields undermines the USD and lends some support.
  • The uncertainty over the Fed's policy outlook holds back bears from placing fresh bets.

Gold price (XAU/USD) struggles to capitalize on the previous day's positive move and oscillates in a narrow trading band through the early European session on Wednesday. Market participants now seem convinced that the Federal Reserve (Fed) will keep interest rates higher for longer in the wake of a still resilient US economy, which, in turn, is seen as a key factor acting as a headwind for the non-yielding bullion. Apart from this, a generally positive tone around the equity markets further seems to undermine the safe-haven commodity amid hopes for a de-escalation of the crisis in the Middle East. 

The downside for the Gold price, however, remains cushioned as traders now seem reluctant to place aggressive bets and prefer to wait for more cues about the likely timing and pace of interest rate cuts by the Fed this year. Hence, the focus will remain glued to next week's release of the latest US consumer inflation figures, which might influence the Fed's future policy decisions and influence the XAU/USD. In the meantime, traders on Wednesday will take cues from the US Trade Balance data, which, along with speeches by Fed officials, should produce short-term opportunities around the commodity. 

Daily Digest Market Movers: Gold price struggles for firm intraday direction amid Fed rate cut uncertainty

  • Investors continue to scale back their expectations for early and steep interest rate cuts by the Federal Reserve, which fails to assist the Gold price to build on the previous day's modest gains.
  • The incoming stronger US macro data, influencing Friday's blockbuster NFP report, suggested that the economy is in good shape, giving the Fed the headroom to keep rates higher for longer.
  • Furthermore, the recent hawkish remarks by influential FOMC members, including Fed Chair Jerome Powell, squashed market expectations for more aggressive policy easing in 2024.
  • Fed Chair Jerome Powell, in an interview with US TV show 60 Minutes aired on Sunday, reiterated that the March meeting is likely too soon to have confidence to start cutting interest rates.
  • Philadelphia Fed President Patrick Harker said on Tuesday that inflation must be moving sustainably lower to open the door to rate cutsr and that it would be a mistake to cut interest rates prematurely.
  • Harker added that the recent news on inflation has been encouraging, though wage gains are still too high for getting to the 2% target and it is possible that inflation may be more persistent than expected.
  • Separately, Minneapolis Fed President Neel Kashkari said that we are not done yet on inflation and most of the disinflationary gains have come from the supply side, but the data is looking positive.
  • The yield on the benchmark 10-year US government bond holds steady above the 4.0% mark, which favours the US Dollar bulls and should cap the XAU/USD, though geopolitical risks to lend support.
  • The US continues its campaign against Houthi rebels in Yemen and intends to launch further strikes at Iran-backed groups, raising the risk of a further escalation of tensions in the Middle East.
  • Traders now look to the US Trade Balance data and Fed speeches for short-term opportunities, though the focus remains glued to the release of the latest US consumer inflation figures next week.

Technical Analysis: Gold price could slide further while below $2,054-2,055, or the monthly swing high

From a technical perspective, the overnight swing low, around the $2,023 area, now seems to protect the immediate downside ahead of the weekly trough, around the $2,015 region. Some follow-through selling below the $2,012-2,010 area might expose the $2,000 psychological mark. A convincing break below the latter could drag the Gold price towards the 100-day Simple Moving Average (SMA), currently around the $1,985 zone, en route to the 200-day SMA, near the $1,966-1,965 region.

On the flip side, any meaningful positive move is likely to confront stiff resistance near the $2,054-2,055 zone. This is followed by the $2,065 hurdle or last week's swing high. Given that oscillators on the daily chart are holding in the positive territory, a sustained strength beyond has the potential to lift the Gold price towards the $2,078-2,079 area, or the YTD peak set in January. The subsequent move-up should allow the XAU/USD to reclaim the $2,100 mark and climb further to the next relevant hurdle near the $2,020 region.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

USD   0.00% 0.04% -0.03% -0.01% 0.05% -0.07% 0.02%
EUR -0.01%   0.05% -0.03% 0.02% 0.05% -0.07% 0.02%
GBP -0.04% -0.05%   -0.08% -0.03% 0.01% -0.11% -0.02%
CAD 0.04% 0.02% 0.06%   0.02% 0.08% -0.05% 0.02%
AUD 0.01% -0.02% 0.03% -0.04%   0.03% -0.09% 0.01%
JPY -0.05% -0.05% 0.02% -0.10% -0.04%   -0.12% -0.06%
NZD 0.07% 0.07% 0.11% 0.04% 0.08% 0.12%   0.08%
CHF -0.03% -0.02% 0.03% -0.05% 0.02% 0.04% -0.09%  

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).

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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