Gold price aims a firm-footing while uncertainty over Fed rate-cut timing persists
- Gold price is expected to close the week positively despite easing Fed early rate-cut hopes.
- The US Dollar falls despite the Fed sees rate cuts sometime in the second half of this year.
- Fed policymakers need more confidence before beginning to cut interest rates.
Gold price (XAU/USD) bounces back in Friday’s early New York session despite easing hopes of early rate cuts by the Federal Reserve (Fed). The precious metal recovers sharply while Fed policymakers are less convinced over inflation declining to the 2% target, which has improved the appeal of the US Dollar.
Fed policymakers are interested in holding interest rates in the range of 5.25%-5.50% for some more time to assess whether January’s sticky inflation data was a speedy bump or a pithole. The Fed seems not in a hurry to jump quickly on rate cuts as it could prompt upside risks to stubborn consumer price inflation.
The opportunity cost of holding non-yielding assets, such as Gold, increases when the Fed leans toward keeping interest rates higher for an extended period. Going forward, action in the safe-haven assets will be guided by market expectations for Fed rate cuts.
Daily Digest Market Movers: Gold price holds strength on hopes of imminent pivot to rate cut by Fed
- Gold price aims to reclaim the crucial resistance of $2,030 even though investors seem convinced that the Federal Reserve will not cut interest rates early.
- As per the CME Fedwatch tool, investors see interest rates remaining unchanged in the range of 5.25%-5.50% in the March and May meetings. Meanwhile, chances of a rate cut in June have come slightly below 50% from previously being around 54%.
- The reasoning behind fading expectations for early rate cuts is Fed policymakers demand for progress in inflation sustainably declining to the 2% for several months and tight labor market conditions.
- On Thursday, Fed Governor Christopher Waller said that the central bank should not rush to bring interest rates down after sticky consumer price inflation data for January.
- Christopher Waller added he wants to see inflation data for at least a couple of more months to judge whether stubborn figures in January were mere short-term fluctuations or progress in inflation easing towards 2% has stalled.
- Waller further added that risks associated with delaying rate cuts are lower than acting on them too quickly.
- Fed Governor Lisa Cook joined Christopher Waller and said she needs more confidence that inflation is converging to 2% before beginning to cut rates.
- In a speech on Thursday, Philadelphia Federal Reserve President Patrick Harker said the next step for the monetary policy is a rate cut, and he is expecting some time in the second half of this year. Harker declined to provide precise timing when the Fed could start easing interest rates.
- Meanwhile, the US Dollar Index (DXY), which gauges the US Dollar’s value against six major currencies, falls sharply to 103.70 amid imminent hopes of Fed pivoting to rate cuts this year.
- On Wednesday, the US Department of Labor reported lower jobless claims for the week ending February 16. Individuals claiming jobless benefits for the first time fell to 201K vs. expectations of 218K and the former release of 213K.
- On the geopolitical front, local authorities in Rafah, a Palestinian city near the southern region of Gaza, have held the Israeli and the US administration responsible for intensified bombarding, which has resulted in an assault on civilians.
- Safe-haven assets like the US Dollar attract more foreign inflows when geopolitical uncertainty deepens.
Technical Analysis: Gold price aims stability above $2,020
Gold price rebounds after sliding to a fresh two-day low below $2,020 as investors need fresh insights on the interest rate outlook. The near-term outlook remains sideways as the precious metal trades in a Symmetrical Triangle chart pattern.
The yellow metal falls after failing to test the downward-sloping border of the Symmetrical Triangle chart pattern formed on a daily time frame, which is plotted from the December 28 high at $2,088. The upward-sloping border of the aforementioned chart pattern is placed from the December 13 low at $1,973.
The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway.
The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.
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.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
