Gold price refreshes all-time high ahead of Fed Powell's testimony, US NFP

  • Gold price trades close to all-time highs near $2,160 as expectations for a Fed rate cut in June increase.
  • The US Dollar has weakened as recent data doubts the strong momentum of US growth.
  • Investors will keenly focus on the US NFP data for fresh impetus.

Gold price (XAU/USD) extends its winning streak for the seventh trading session on Thursday. The precious metal refreshes all-time highs near $2,160 amid multiple tailwinds. Firm expectations for a rate-cut decision by the Federal Reserve (Fed) in the June monetary policy meeting have strengthened the appeal for Gold. Improved safe-haven demand due to uncertain global financial conditions has also strengthened demand for Gold. 

A sharp decline in US Treasury yields has reduced the opportunity cost of holding investments in non-yielding assets, such as Gold. 10-year US Treasury yields are slightly up by 0.2% at 4.11% in Thursday’s European session, but have dropped sharply from 4.22% in the last two trading sessions. 

Yields on interest-bearing government bonds slumped as Fed Chair Jerome Powell said in his semi-annual report presented to Congress that rate cuts would be appropriate sometime this year, even though he also said it is not assured that inflation will return sustainably to 2%.

The US Dollar Index (DXY) has dropped to a monthly low near 103.20 amid uncertainty over the United States economic outlook. Going forward, the US Dollar will be guided by the US Nonfarm Payrolls (NFP) data for February, which will be published on Friday. Also, Fed Powell will testify before Congress for the second day at 15:00 GMT.

Daily digest market movers: Gold price exhibits strength ahead of Fed Powell's testimony

  • Gold price hits a fresh all-time high around $2,160 as market expectations for Federal Reserve rate cuts in the June meeting increase and global growth prospects remain uncertain. The CME Fedwatch tool shows that the chances for a 25 basis point (bp) rate cut for June’s policy meeting have increased to 60% from 58% on Wednesday.
  • The expectations for a rate-cut decision in the June meeting were affirmed despite Fed chair Jerome Powell reiterating that rate cuts are appropriate only if they get convinced that inflation will sustainably return to the 2% target. Powell didn’t offer any specific timing for rate cuts but said, "It will likely be appropriate to begin dialing back policy restraint at some point this year."
  • Contrary to market expectations, Minneapolis Federal Reserve Bank President Neel Kashkari delivered a more hawkish stance on Wednesday. Kashkari said that he expects only one rate cut is appropriate due to robust economic data since the start of the year. In December’s economic projections, Kashkari penciled two rate cuts for 2024.
  • Meanwhile, uncertainty over global growth has also improved the appeal of Gold. Jerome Powell warned in his prepared remarks that the economic outlook is uncertain. A few economic indicators signal that the United States economy is losing momentum. The Institute of Supply Management (ISM) PMIs reported a decline in growth in February. In the same period, hiring by private employers was lower at 140K against expectations of 150K. In January, jobs posted by US employers were slightly lower at 8.863 million against the 8.9 million in December.
  • Across the globe, the outlook of the United Kingdom and the Eurozone economy is uncertain. The former fell into a technical recession in the second half of 2023, while the latter remained stagnant in the same period. On the Asian side, the Chinese economy has vowed to transform its growth model and set an ambitious growth target of 5% for 2024. However, economists have voiced doubts about the chances of reaching this target due to weak retail domestic demand, disinflation, and the real-estate crisis.
  • On the economic data front, the US Department of Labor has reported weekly jobless claims for the week ending March 1. Individuals claiming jobless benefits for the first time rose slightly to 217K from expectations of 215K and the prior reading of 217K. Jobless claims for the last week were revised higher from 215K. 

Technical Analysis: Gold price trades close to all-time highs above $2,160

Gold price prints a fresh all-time high at $2,161.60 after breaking above the horizontal resistance plotted from December 4 high near $2,145. The Gold price is trading in unchartered territory and is expected to remain broadly bullish. However, a corrective move in the asset cannot be ruled out as momentum oscillators have reached overbought territory. On the downside, December 4 high near $2,145 and December 28 high at $2,088 will be major support levels.

The 14-period Relative Strength Index (RSI) reaches 82.00, the highest level in the last two years, indicating that fresh bids should not be considered. 

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.


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