- Gold price drifts lower for the third straight day and drops to over a one-month low.
- The Fed’s hawkish stance continues to underpin the USD and weigh on the commodity.
- Retreating US bond yields and a weaker risk tone lend some support to the XAU/USD.
- The lack of any buying interest favours bears and supports prospects for further losses.
Gold price (XAU/USD) prolongs its recent rejection slide from the very important 200-day Simple Moving Average (SMA) and remains under some selling pressure for the third successive day on Wednesday. This also marks the sixth day of a negative move in the previous seven and drags the commodity to its lowest level since August 22, around the $1,895 region during the first half of the European session.
The US Dollar (USD) stands tall near a fresh 10-month peak touched earlier today and remains well supported by the Federal Reserve's (Fed) higher-for-longer narrative, which, in turn, is seen weighing on the Gold price. Moreover, the recent comments by Fed officials reinforced bets for at least one more rate hike by the end of this year. That said, a sharp pullback in the US Treasury bond yields holds back the USD bulls from placing fresh bets.
Apart from this, the prevalent risk-off mood limits losses for the safe-haven Gold price. Data released from the United States (US) on Tuesday showed that the Conference Board's Consumer Confidence Index fell to a four-month low in September. This fueled concerns that consumers are feeling the pressure from the persistent high inflation and rising interest rates. This, along with concerns over China weigh on investors' sentiment.
Any meaningful recovery for the Gold price, however, still seems elusive. Market participants now look to the US economic docket, featuring the release of Durable Goods Orders later during the early North American session. The attention will then turn to the final US Q2 GDP print and Fed Chair Jerome Powell's speech on Thursday. The focus, however, will remain on the US Core PCE Price Index - the Fed's preferred inflation gauge – on Friday.
Daily Digest Market Movers: Gold price struggles to attract any meaningful buyers despite risk-off
The US Dollar climbs to a fresh 10-month peak and continues to drive flows away from the Gold price.
Bets for one more Fed rate hike in 2023 underpin the USD and weigh on the non-yielding yellow metal.
The recent hawkish remarks by Fed officials reaffirm the higher-for-longer interest rates narrative.
The risk-off mood lends some support to the safe-haven XAU/USD or limits any further losses for now.
A deterioration in the US consumer sentiment adds to worries about a deeper economic downturn.
China's economic woes also take a toll on the risk sentiment and dampen the appetite for riskier assets.
The fundamental backdrop and a breakdown below $1,900 support prospects for a further decline.
Technical Analysis: Gold price remains vulnerable to extending its descending trend
Gold price now seems to have found acceptance below the $1,900 mark, which, along with bearish oscillators on the daily chart, suggests that the path of least resistance is to the downside. Hence, some follow-through weakness towards retesting the August monthly swing low, around the $1,885-1,884 region, looks like a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and set the stage for an extension of the retracement slide from an all-time high touched in May.
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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