Gold price sticks to modest intraday gains, lacks follow-through ahead of US macro data
- Gold price attracts some buyers on Tuesday and reverses a part of the overnight slide from the record high.
- The uptick lacks bullish conviction as investors are seeking more clarity about the Fed's future rate-hike path.
- Traders now look to the US macro data for some impetus amid falling US bond yields and the risk-off mood.
Gold price (XAU/USD) catches fresh bids on Tuesday following the previous day's dramatic turnaround of nearly $125 from the record peak, around the $2,144-2,145 region. The precious metal sticks to modest gains through the early European session, albeit lacks follow-through amid mixed cues. In a speech on Friday, the Federal Reserve (Fed) Chair Jerome Powell pushed back against speculations of more aggressive rate cuts and said that it would be premature to conclude when policy might ease. The markets, however, seem convinced that the US central bank is done with its policy-tightening campaign and are now pricing in an even chance of a rate cut as early as March 2024.
Apart from this, a modest US Dollar (USD) uptick turns out to be another factor acting as a headwind for the Gold price. The safe-haven XAU/USD, however, maintains its bid tone amid concerns about a broader conflict in the Middle East. This, along with a darkening global economic outlook, takes its toll on the global risk sentiment, which is evident from a generally weaker tone around the equity markets. Meanwhile, the global flight to safety triggers a fresh leg down in the US Treasury bond yields against the backdrop of dovish Fed expectations and should cap the upside for the USD, suggesting that the path of least resistance for the precious metal remains to the upside.
Traders now look to the US economic docket, featuring the release of the ISM Services PMI and JOLTS Job Opening data for some impetus later during the North American session. The market attention will then shift to the US ADP report on private-sector employment, due on Wednesday, though the focus will remain glued to the official monthly jobs report. The popularly known Nonfarm Payrolls (NFP) will provide fresh cues about labour market conditions, which might influence the Fed's near-term policy outlook and drive demand for the Gold price.
Daily Digest Market Movers: Gold price remains supported by the risk-off mood and Fed rate cut bets
- A combination of supporting factors assists the Gold price to regain some positive traction on Tuesday and stall the overnight sharp retracement slide from the $2.144-2,145 area, or the record peak.
- Geopolitical risks and concerns over a new epidemic in China overshadow the upbeat private survey from China, showing that business activity in the services sector grew at a faster pace in November.
- China's Caixin Services PMI accelerated from 50.4 in October to 51.5 during the reported month, beating market expectations for a reading of 50.8, though it remains well below pre-COVID levels.
- Despite Federal Reserve Chair Jerome Powell's hawkish remarks on Friday, markets seem convinced that the US central bank is done raising rates and may start easing by the first half of the next year.
- The CME group's FedWatch Tool indicates a nearly 60% chance for an interest rate cut by the Fed in March 2024, which drags the US bond yields lower and acts as a headwind for the US Dollar.
- Furthermore, concerns about a darkening global economic outlook temper investors' appetite for riskier assets and drive some flows toward the perceived traditional safe-haven precious metal.
- Traders now look forward to the US ISM Services PMI, which is expected to tick higher to 52 for November from 51.8 in the previous month, for some short-term opportunities.
- The focus, however, will remain on the release of the US monthly employment details, popularly known as the NFP report on Friday, which will shed more light on the labor market conditions.
Technical Analysis: Gold price might face some resistance near $2,045-$2,046 region
From a technical perspective, the overnight breakdown below the 50% Fibonacci retracement level of the recent rally witnessed over the past three weeks or so warrants caution for bullish traders. That said, oscillators on the daily chart have eased from the overbought conditions and are still holding comfortably in the positive territory. Apart from this, the occurrence of a golden cross, with the 50-day Simple Moving Average (SMA) rising above the 200-day SMA, suggests that the path of least resistance for the Gold price is to the upside.
Meanwhile, any subsequent move up is likely to confront some resistance near the $2,045-2,046 area, above which the XAU/USD could accelerate the momentum and climb to the next relevant hurdle around the $2,070 region. Some follow-through buying should allow bulls to reclaim the $2,100 round figure. On the flip side, the $2,026-2,020 area now seems to protect the immediate downside ahead of the 61.8% Fibo. level, around the $2,012 zone and the $2,000 psychological mark. A convincing break below the latter will suggest that the Gold price has topped out in the near term and pave the way for some meaningful depreciating move.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.42% | 0.58% | 0.50% | 1.49% | 0.49% | 1.02% | 0.52% | |
| EUR | -0.44% | 0.17% | 0.08% | 1.09% | 0.05% | 0.62% | 0.11% | |
| GBP | -0.61% | -0.16% | -0.08% | 0.92% | -0.09% | 0.45% | -0.05% | |
| CAD | -0.50% | -0.08% | 0.09% | 1.01% | -0.02% | 0.54% | 0.03% | |
| AUD | -1.51% | -1.09% | -0.92% | -1.01% | -1.04% | -0.47% | -0.98% | |
| JPY | -0.53% | -0.04% | 0.28% | 0.03% | 1.02% | 0.59% | 0.04% | |
| NZD | -1.03% | -0.61% | -0.45% | -0.54% | 0.47% | -0.55% | -0.51% | |
| CHF | -0.55% | -0.10% | 0.06% | -0.03% | 0.97% | -0.04% | 0.50% |
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.
