Gold price extends its consolidative price move amid mixed fundamental cues
- Gold price lacks any firm direction and is influenced by a combination of diverging factors.
- A slew of Fed officials pushed back against bets for early rate cuts in 2024 and cap the upside.
- Geopolitical risks act as a tailwind for the metal ahead of the US PCE Price Index on Friday.
Gold price (XAU/USD) struggles to gain any meaningful traction and extends its sideways consolidative price move through the first half of the European session on Tuesday. A slew of influential Federal Reserve (Fed) officials recently downplayed market expectations about an imminent shift in the US central bank's policy stance and attempted to push back bets for early rate cuts in 2024. This, along with the post-Bank of Japan (BoJ) heavy selling around the Japanese Yen (JPY), helps revive the US Dollar (USD) demand and acts as a headwind for the non-yielding yellow metal.
Apart from this, the robust risk-on sentiment pervading across the global equity markets, with US stock indices ending close to the record high on Monday, further contributes to capping the upside for the safe-haven Gold price. Investors, meanwhile, remain concerned about geopolitical risks linked to the conflict in the Middle East and a global economic downturn, particularly in China and the Eurozone. This, in turn, continues to lend some support to the safe-haven XAU/USD. Traders also seem reluctant to place aggressive bets ahead of a key US inflation reading, due on Friday.
The US Core Personal Consumption Expenditure (PCE) Price Index will be looked upon for fresh clues about the Fed's future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the Gold price. In the meantime, traders on Tuesday will take cues from the US housing market data – Building Permits and Housing Starts. Apart from this, a scheduled speech by Richmond Fed President Thomas Barkin might influence the XAU/USD and produce short-term opportunities later during the North American session.
Daily Digest Market Movers: Gold price continues with its struggle to gain any meaningful traction
- Chicago Federal Reserve President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, pushed back against market bets on interest rate cuts on Monday.
- Goolsbee said that he was confused over the market reaction to last week's FOMC meeting and that the central bank is not precommiting to cutting rates soon and swiftly.
- Separately, Cleveland Fed President Loretta Mester noted that financial markets had gotten a little bit ahead of the central bank on when to expect interest rate cuts next year.
- This comes on the back of New York Fed President John Williams's remarks on Friday that it was premature to speculate about rate cuts and caps the upside for the Gold price.
- The markets, however, seem convinced that the Fed will pivot to easing by the first half of 2024, which continues to undermine the US Dollar and lends support to the metal.
- Concerns over geopolitical risks linked to the conflict in the Middle East should further contribute to limiting any meaningful downfall for the safe-haven precious metal.
- Yemen's Iran-aligned Houthi militants launched a series of drone and missile attacks on ships in the southern Red Sea, which it says are a response to Israel's assault on the Gaza Strip.
- US Defence Secretary Lloyd Austin announced the formation of a multinational coalition and the launch of Operation Prosperity Guardian to address the Houthi threat in the Red Sea.
- Investors now look forward to the US Core Personal Consumption Expenditure (PCE) Price Index on Friday for clues about the Fed's future policy decisions.
Technical Analysis: Gold price bulls need to wait for a move beyond the $2,040 barrier
From a technical perspective, the Gold price needs to find acceptance above the $2,040 supply zone for bulls to seize near-term control. This is followed by last week's swing high, around the $2,049-2,050 region, which if cleared will set the stage for a move towards the next relevant barrier near the $2,072-2,073 area. The upward trajectory could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.
On the flip side, the $2,015 area might continue to protect the immediate downside ahead of the 2,010 horizontal resistance breakpoint and the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable to challenge the 50-day Simple Moving Average (SMA) support, currently pegged near the $1,985 level before dropping to last week's swing low, around the $1,973 area. Bears might then aim to test the 200-day SMA, near the $1,956 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 weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.05% | -0.08% | -0.06% | -0.31% | 0.46% | -0.31% | -0.06% | |
| EUR | 0.05% | -0.03% | -0.01% | -0.25% | 0.51% | -0.25% | 0.01% | |
| GBP | 0.08% | 0.02% | 0.02% | -0.23% | 0.53% | -0.24% | 0.02% | |
| CAD | 0.06% | 0.01% | -0.01% | -0.25% | 0.50% | -0.25% | 0.00% | |
| AUD | 0.30% | 0.26% | 0.23% | 0.25% | 0.76% | 0.00% | 0.24% | |
| JPY | -0.46% | -0.49% | -0.54% | -0.52% | -0.77% | -0.76% | -0.51% | |
| NZD | 0.31% | 0.25% | 0.23% | 0.24% | 0.00% | 0.77% | 0.24% | |
| CHF | 0.06% | -0.01% | -0.02% | 0.00% | -0.24% | 0.52% | -0.24% |
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.
