Gold price hangs near daily low, dovish Fed expectations and a weaker USD to limit losses
- Gold price struggles to capitalize on its modest intraday move up to the $1,985 region.
- Hopes for more stimulus from China boost investors' confidence and act as a headwind..
- Bets that the Fed is done raising rates undermine the US Dollar and should lend support.
Gold price (XAU/USD) meets with some supply following an intraday uptick to the $1,985 area on Monday and drops to the lower end of its daily trading range during the first half of the European session. Investors turned optimistic after Chinese officials vowed to roll out more policy support for the country’s beleaguered real estate sector. This, in turn, is seen as a key factor undermining the safe-haven precious metal, though the downside seems cushioned.
Investors now seem convinced that the Federal Reserve (Fed) is done with its policy tightening campaign and will maintain the status quo at its December 2023 meeting. Moreover, the markets are currently pricing in the possibility that the Fed could begin cutting interest rates as soon as March 2024. This, in turn, drags the US Dollar (USD) to its lowest level since August 31, which, along with the worsening global economic outlook and geopolitical risks, could lending support to the Gold price.
Traders might also refrain from placing aggressive directional bets and prefer to wait on the sidelines ahead of the release of the FOMC meeting minutes, due on Tuesday. The minutes will be closely scrutinised to get a fresh insight into the future rate-hike path and policymakers' views on whether the US Central Bank should raise rates again. This, in turn, will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the non-yielding Gold price.
Daily Digest Market Movers: Gold price surrenders modest intraday gains amid optimism over China stimulus
- Gold price continues to draw support from firming expectations that the Federal Reserve (Fed) will not hike interest rates amid signs that the high-prices nightmare has ended.
- The US CPI report last week indicated that consumer inflation was cooling faster than anticipated, while the US Jobless Claims last Thursday pointed to a cooling labour market.
- The markets seem convinced that the Fed will leave rates unchanged at its December 2023 policy meeting and are pricing in nearly 100 bps of rate cuts by the end of 2024.
- A turnaround in expectations for the Fed's future policy action dragged the benchmark 10-year US Treasury yield to a two-month low on Friday and benefit the non-yielding metal.
- The US Dollar languishes near its lowest level since September and is seen as another factor lending support to the XAU/USD ahead of the FOMC minutes on Tuesday.
- The escalation of violence between Israel and Hamas has sparked concerns about its potential impact on the world economy and, in a worst-case scenario, could push it into recession.
- Israel and the US rejected reports of a potential breakthrough in negotiations with Hamas to free some of the 240 hostages in Gaza in exchange for a five-day pause in the war.
- The People’s Bank of China kept its Loan Prime Rate (LPR) near record lows, as widely expected, and also injected about 80 billion Yuan of liquidity into markets.
- Chinese regulators vowed to provide more policy support to the beleaguered real estate sector, boosting investors' confidence and capping the safe-haven XAU/USD.
Technical Analysis: Gold price is likely to find decent support near the $1,963 region
From a technical perspective, bulls need to wait for sustained strength and acceptance above the $1,990 supply zone before placing fresh bets. The Gold price might then aim to surpass the $2,000 psychological mark and retest a multi-month peak, around the $2,009-2,010 region touched on October 27. On the flip side, the Asian session low, around the $1,973 area, now seems to protect the immediate downside. Some follow-through selling could expose the next relevant support near the $1,963 region, below which the XAU/USD could challenge the 200-day Simple Moving Average (SMA), currently pegged near the $1,938-1,937 zone.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.16% | -0.23% | -0.14% | -0.53% | -0.69% | -0.49% | -0.17% | |
| EUR | 0.16% | -0.08% | 0.02% | -0.36% | -0.52% | -0.32% | -0.01% | |
| GBP | 0.23% | 0.09% | 0.11% | -0.27% | -0.45% | -0.24% | 0.09% | |
| CAD | 0.14% | -0.01% | -0.10% | -0.38% | -0.54% | -0.34% | -0.01% | |
| AUD | 0.51% | 0.37% | 0.28% | 0.38% | -0.18% | 0.03% | 0.35% | |
| JPY | 0.71% | 0.55% | 0.23% | 0.56% | 0.18% | 0.22% | 0.54% | |
| NZD | 0.47% | 0.32% | 0.24% | 0.35% | -0.04% | -0.22% | 0.34% | |
| CHF | 0.17% | 0.01% | -0.07% | 0.03% | -0.36% | -0.52% | -0.32% |
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).
Interest rates FAQs
What are interest rates?
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.
How do interest rates impact currencies?
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.
How do interest rates influence the price of Gold?
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.
What is the Fed Funds rate?
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
