Gold price advances as Middle East tensions escalate, Fed policy eyed

  • Gold price delivers strong upside move as geopolitical tensions deepen.
  • Fed policy, labor market and Manufacturing PMI data for December will remain in the spotlight.
  • The Fed is expected to keep interest rates unchanged for the fourth straight time.

Gold price (XAG/USD) remains upbeat as mounting geopolitical tensions have improved the appeal of bullion. The precious metal attracts significant bids as the drone attack on US bases near northeastern Jordan has impacted market sentiment. In response to that, US President Joe Biden has pleged to retailiate at a time and the place that will they choose. Meanwhile, Iran has denied claims stating their involvement in aerial drone attacks. In addition, a moderate increase in the U S Core Personal Consumption Expenditures (PCE) data for December has softened the inflation outlook.

This week, investors should brace for a high volatile action as the interest rate decision by the Federal Reserve (Fed) will be followed by the Institute of Supply Management (ISM) Manufacturing PMI and Nonfarm Payrolls (NFP) report for December. The Fed is widely anticipated to keep interest rates steady in the 5.25-5.50% range but fresh guidance on interest rates will be keenly watched. Investors would look for cues of whether Fed policymakers continue leaning towards keeping interest rates restrictive till June or are likely to signal a dovish decision for March or May. 

Daily Digest Market Movers: Gold price remains upbeat as safe-haven appeal improves

  • Gold price discovers strong buying interest on Monday as investors rush for safe-haven assets due to deepening Middle East tensions.
  • The precious metal witnesses significant bets as geopolitical tensions mount after a drone attack on US service members stationed in northeastern Jordan.
  • Meanwhile, continued attacks on energy shipments in the Red Sea by Iran-backed-Houthis have disrupted the global supply chain.
  • This week, market participants will focus on the Federal Reserve’s first monetary policy announcement of 2024, which is scheduled for Wednesday.
  • As per the CME FedWatch Tool, investors are pretty confident that interest rates will remain unchanged in the range of 5.25-5.50% for the fourth straight time.
  • While major focus will be on the interest rate outlook. Traders see a higher probability of the Fed reducing interest rates from May as policymakers have been reiterating the need for maintaining restrictive interest rates for a longer period until they get convinced that inflation would come down to the 2% target in a timely manner.
  • The US Dollar Index (DXY) could come under pressure if the Fed signals that it could commence its rate-cutting campaign from March. 
  • A soft core PCE price index report for December, released on Friday, failed to uplift expectations of a rate-cut from March.
  • Monthly core PCE grew by 0.2% as expected while annual underlying inflation data decelerated to 2.9% against expectations of 3.0% and the former reading of 3.2%.
  • Apart from the Fed policy, it will be a volatile week as Manufacturing PMI, and ADP and official Employment data have lined-up for release.
  • But first, market participants will look for the US JOLTS Job Openings data, which will be published on Tuesday. This will indicate how strong the labor demand is despite interest rates remaining elevated.
  • Investors have anticipated that US employers posted fresh 8.75M jobs in December against 8.79M in November.

Technical Analysis: Gold price jumps to near $2,030

Gold price approaches the horizontal resistance of the Ascending Triangle chart pattern plotted from January 19 high at $2,039.50, on the two-hour timeframe. The upward-sloping border of the aforementioned pattern is plotted from the January 17 low near $2,002. The pattern has a bullish bias, suggesting a breakout higher will follow its completion. 

On a daily time frame, the precious metal continues to put efforts for sustainability above the 20-day Exponential Moving Average (EMA), which trades around $2,030.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content

Recommended content

Editors’ Picks

EUR/USD climbs to 10-day highs above 1.0700

EUR/USD climbs to 10-day highs above 1.0700

EUR/USD gained traction and rose to its highest level in over a week above 1.0700 in the American session on Tuesday. The renewed US Dollar weakness following the disappointing PMI data helps the pair stretch higher.


GBP/USD extends recovery beyond 1.2400 on broad USD weakness

GBP/USD extends recovery beyond 1.2400 on broad USD weakness

GBP/USD gathered bullish momentum and extended its daily rebound toward 1.2450 in the second half of the day. The US Dollar came under heavy selling pressure after weaker-than-forecast PMI data and fueled the pair's rally. 


Gold trims losses on disappointing US PMIs

Gold trims losses on disappointing US PMIs

Gold (XAU/USD) reclaims part of the ground lost and pares initial losses on the back of further weakness in the Greenback following disheartening US PMIs prints.

Gold News

Here’s why Ondo price hit new ATH amid bearish market outlook Premium

Here’s why Ondo price hit new ATH amid bearish market outlook

Ondo price shows no signs of slowing down after setting up an all-time high (ATH) at $1.05 on March 31. This development is likely to be followed by a correction and ATH but not necessarily in that order.

Read more

Germany’s economic come back

Germany’s economic come back

Germany is the sick man of Europe no more. Thanks to its service sector, it now appears that it will exit recession, and the economic future could be bright. The PMI data for April surprised on the upside for Germany, led by the service sector.

Read more