Gold price moves up on bets that Fed will not hike rates again, risk-on mood caps gains
- Gold price gains positive traction on Thursday amid sliding US bond yields and a weaker USD.
- Geopolitical tensions and China’s economic woes also contribute to the intraday positive move.
- The prevalent risk-on environment caps any further upside for the safe-haven precious metal.
Gold price (XAU/USD) builds on the previous day's bounce from the $1,970-1,969 region, or a one-week low and gains some follow-through traction on Thursday. The precious metal touches a fresh daily high during the first half of the European session, though remains below the $2,000 psychological mark. A generally positive tone around the equity markets is seen as a key factor acting as a headwind for the precious metal and warrants caution for bulls.
That said, declining US Treasury bond yields and the prevalent US Dollar (USD) selling bias, led by bets that the Federal Reserve (Fed) will not hike interest rates any further, might continue to act as a tailwind for the non-yielding Gold price. Apart from this, the risk of a further escalation in the Israel-Hamas conflict, along with the worsening economic conditions in China, supports prospects for a further appreciating move for the safe-haven yellow metal.
Daily Digest Market Movers: Gold price sticks to gains amid sliding US bond yields and weaker USD
- Gold price struggles to capitalize on its modest intraday uptick amid the prevalent risk-on environment and the uncertainty over the Federal Reserve’s future rate-hike path.
- The Fed decided to keep the key overnight interest rates unchanged for the second time in a row and noted that financial conditions may be tight enough already to control inflation.
- The markets now expect the US central bank to start cutting rates in June 2024, which leads to a further steep decline in the US Treasury bond yields and undermine the US Dollar.
- The yield on the rate-sensitive two-year US government bond falls to its lowest level since September 8, while the benchmark 10-year Treasury yield moves away from the 5% threshold.
- The Fed upgraded its assessment of the economic activity and acknowledged the US economy's unexpected resilience, keeping the prospect of another hike on the table.
- On the geopolitical front,Gaza's largest refugee camp was hit by a series of powerful explosions, which the Israeli military cliams to have killed a Hamas commander linked to the October 7 attacks.
- Bolivia cut its diplomatic ties with Israel as a result of civilian losses caused by what it describes as aggressive and disproportionate military action in Gaza.
- Israel's Prime Minister refused any avenue for a ceasefire, saying that such appeals were a call for Israel to surrender to Hamas, to surrender to terrorism, to surrender to barbarism.
- The market focus now shifts to the US monthly employment details – the NFP report – due on Friday, which should provide some meaningful impetus to the precious metal.
Technical Analysis: Gold price might confront stiff resistance near the $2,000 psychological mark
From a technical perspective, the $2,000 mark is likely to act as an immediate strong barrier. This is followed by a multi-month top, around the $2,008-2,010 area, which if cleared decisively has the potential to lift the Gold price to the next relevant barrier near the $2,022 region. On the flip side, the overnight swing low, around the $1,970 region, now seems to offer some support to the XAU/USD. Some follow-through selling will expose the $1,964 intermediate support before the commodity drops to the $1,954-1,953 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 strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.14% | -0.09% | -0.04% | -0.16% | -0.17% | -0.22% | -0.35% | |
| EUR | 0.14% | 0.04% | 0.10% | -0.03% | -0.03% | -0.08% | -0.21% | |
| GBP | 0.10% | -0.05% | 0.06% | -0.07% | -0.07% | -0.12% | -0.25% | |
| CAD | 0.05% | -0.10% | -0.06% | -0.12% | -0.12% | -0.17% | -0.31% | |
| AUD | 0.17% | 0.05% | 0.08% | 0.14% | 0.02% | -0.05% | -0.17% | |
| JPY | 0.16% | 0.05% | 0.07% | 0.11% | -0.01% | -0.05% | -0.20% | |
| NZD | 0.25% | 0.04% | 0.09% | 0.17% | 0.05% | 0.05% | -0.17% | |
| CHF | 0.35% | 0.22% | 0.25% | 0.31% | 0.17% | 0.19% | 0.12% |
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.
