Gold price refreshes weekly high on dovish Fed bets, risk-on mood could cap further gains


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  • Gold price gains some positive traction for the third straight day and climbs to a one-week high on Wednesday.
  • The USD languishes near its lowest level in more than two months amid bets that the Fed is done raising rates. 
  • The prevalent risk-on mood might hold back bulls from placing fresh bets and cap the upside for the XAU/USD.

Gold price (XAU/USD) scales higher for the third successive day on Wednesday and touches a fresh weekly high, around the $1,971 region during the early part of the European session. The momentum remains well supported by the prevalent US Dollar (USD) selling bias, fueled by firming expectations that the Federal Reserve (Fed) is done raising interest rates, which, in turn, is seen benefitting the non-yielding yellow metal.

That said, the prevalent risk-on environment, bolstered by dovish Fed expectations and a massive liquidity injection by China’s central bank, could act as a headwind for the safe-haven Gold price and cap any further gains. Moreover, signs that tensions in the Middle East could be easing warrant caution before positioning for an extension of this week's recovery from the lowest level since October 18, around the $1,930 area touched on Monday.

Daily Digest Market Movers: Gold price remains supported by expectations that the Fed will not raise rates again

  • The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline CPI was unchanged in October, while the yearly rate registered its smallest rise in two years and decelerated to 3.2% from 3.7% in September.
  • The data reaffirms expectations that the Federal Reserve (Fed) has ended its policy tightening cycle and lifts bets for a rate cut in May 2024, which, in turn, triggered the overnight steep decline in the US Treasury bond yields.
  • The yield on the benchmark 10-year US government bond languishes near a two-month low, keeping the US Dollar depressed near its lowest level since September 1 and lending some support to the non-yielding Gold price.
  • The prevalent risk-on mood is seen acting as a headwind for the safe-haven precious metal, though the fundamental backdrop favours bullish traders and suggests that the path of least resistance remains to the upside.
  • Dovish Fed expectations, along with a 600 billion Yuan liquidity injection by the People’s Bank of China, aimed at shoring up sluggish economic growth and encouraging more lending in the country, boosts investors' confidence.
  • China's Industrial Production grew by 4.6% YoY in October, better than the 4.5% rise in the previous month and consensus estimates, and the monthly Retail Sales advanced more than expected, by 7.4% over the past 12 months.
  • China's Fixed Asset Investment climbed by 2.9% YoY during the reported month as compared to the 3.1% anticipated and September reading. The data does little to influence the market sentiment or provide any impetus.
  • Market participants now look to the release of the US Producer Price Index (PPI) and monthly Retail Sales figures for short-term opportunities later during the early North American session this Wednesday.
  • The headline US PPI is anticipated to have risen by 0.1% in October, down from 0.5% in the previous month, and the yearly rate is seen falling below the 2.0% mark, though the core PPI is expected to match September's readings.
  • The US Retail Sales possibly contracted by 0.3% in October, down sharply from the 0.7% rise registered in the previous month, while sales excluding automobiles are expected to remain flat MoM.

Technical Analysis: Gold price touches a fresh weekly top; seems poised to  extend its appreciating move

From a technical perspective, any subsequent move beyond the overnight swing high, around the $1,970-1,971 area, is likely to confront some resistance near the $1,980 region. Some follow-through buying has the potential to lift the Gold price towards the $1,991-1,992 hurdle en route to the $2,000 psychological mark and a multi-month peak, around the $2,009-2,010 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.

On the flip side, a corrective pullback might now attract some buyers and remain limited near the $1,950-1,949 area. This is followed by a cluster of supports near the 200-day SMA, currently pegged around the $1,935 region, and the 100- and the 50-day SMAs confluence near the $1,928-1,925 zone. Failure to defend the said support levels would make the Gold price vulnerable to accelerate the fall towards the $1,900 round figure.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Pound Sterling.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -1.76% -2.14% -0.80% -2.10% -0.59% -2.06% -1.48%
EUR 1.72%   -0.38% 0.94% -0.33% 1.14% -0.30% 0.27%
GBP 2.09% 0.38%   1.31% 0.05% 1.51% 0.08% 0.64%
CAD 0.79% -0.96% -1.34%   -1.27% 0.21% -1.24% -0.68%
AUD 2.05% 0.32% -0.06% 1.26%   1.45% 0.02% 0.58%
JPY 0.58% -1.16% -1.54% -0.21% -1.48%   -1.47% -0.89%
NZD 2.01% 0.29% -0.09% 1.22% -0.04% 1.43%   0.56%
CHF 1.46% -0.27% -0.65% 0.66% -0.61% 0.87% -0.57%  

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).

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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