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Gold stands firm near two-week top as dovish Fed expectations undermine USD

  • Gold regains positive traction on Wednesday amid rising bets for a Fed rate cut in December.
  • The USD drops to a one-week low amid dovish Fed expectations, benefiting the commodity.
  • A positive risk tone and hopes for a Russia-Ukraine peace deal could cap the precious metal.

Gold (XAU/USD) maintains its bid tone heading into the European session and currently trades near a one-and-a-half-week top, touched earlier this Wednesday. Traders ramped up bets for another interest rate cut by the US Federal Reserve (Fed) after the US Producer Price Index (PPI), released on Tuesday, pointed to signs of cooling inflation. Moreover, several Fed officials backed the case for further policy easing, which dragged the US Dollar (USD) to a one-week low and acts as a tailwind for the non-yielding yellow metal.

Meanwhile, the prospect of lower US interest rates boosts investors' appetite for riskier assets. Moreover, hopes for a peace deal between Russia and Ukraine remain supportive of the upbeat mood across the global equity markets, which is holding back traders from fresh bullish bets around the safe-haven Gold. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD pair remains to the upside. Hence, any corrective pullback is likely to get bought into and remain limited.

Daily Digest Market Movers: Gold continues to draws support from dovish Fed expectations and weaker USD

  • The latest figures from the Bureau of Labor Statistics showed on Tuesday that the US Producer Prices Index rose 2.7% in September from a year earlier, slightly above the 2.6% previous and broadly in line with expectations. Stripping out food and energy, the core gauge was up 2.9% over the year compared to the 2.7% forecast and the 2.8% increase recorded in August.
  • Separately, the US Census Bureau reported that Retail Sales rose 0.2% on a monthly basis in September. The reading was below consensus estimates for a 0.4% growth and follows a 0.6% increase in August. Adding to this, the Conference Board's Consumer Confidence Index dropped to a seven-month low in November amid concerns about a sluggish labor market.
  • Meanwhile, New York Federal Reserve President John Williams said last Friday that interest rates could fall in the near term without putting the central bank's inflation goal at risk. Furthermore, Fed Governor Christopher Waller said earlier this week that the job market is weak enough to warrant another quarter-point interest rate cut at the December meeting.
  • Governor Stephen Miran echoed the dovish view and said in a television interview on Tuesday that a deteriorating job market and the economy call for large interest rate cuts to get monetary policy to neutral. Traders were quick to react and are now pricing in around an 85% chance that the US central bank will lower borrowing costs by 25 basis points next month.
  • The US Dollar fell to a nearly one-week low in the aftermath of the rather unimpressive data, which was delayed in the wake of the longest-ever US government shutdown, and rising dovish Fed bets. This, in turn, assists the non-yielding Gold to regain some positive traction during the Asian session on Wednesday, following the previous day's two-way price move.
  • President Volodymyr Zelenskiy said on Tuesday that Ukraine is ready to advance a US-backed framework for ending the war with Russia. Moreover, US President Donald Trump backed away from imposing any deadline to reach a peace deal and said that his special envoy, Steve Witkoff, will be going to Moscow to meet Russian President Vladimir Putin next week.
  • Traders now look forward to Wednesday's US economic docket – featuring the delayed release of Durable Goods Orders, along with the usual Weekly Initial Jobless Claims and Chicago PMI. Apart from this, comments from influential FOMC members will play a key role in driving the USD demand and producing short-term opportunities around the XAU/USD pair.

Gold constructive technical setup backs case for move toward reclaiming $4,200

The commodity defended a confluence support last week – comprising the 200-period Exponential Moving Average (EMA) on the 4-hour chart and an upward-sloping trend-line extending from late October. The subsequent move up, along with positive oscillators on 4-hour/daily charts, backs the case for a further near-term upward move. Some follow-through buying beyond the overnight swing high, around the $4,159 region, will reaffirm the positive outlook and lift Gold price to the $4,177-4,178 intermediate hurdle en route to the $4,200 round figure. Sustained strength beyond the latter will set the stage for an extension of the momentum toward testing the monthly swing high, around the $4,245 zone.

On the flip side, any pullback might continue to find decent support near the $4,110-4,100 region. A convincing break below the latter would expose the aforementioned confluence, currently pegged near the $4,034-4,033 zone, below which the Gold price could drop to the $4,000 psychological mark. Some follow-through selling might shift the bias in favor of bearish traders and pave the way for a fall toward last week's swing low, around the $3,968-3,967 area. The XAU/USD could extend the fall further toward the $3,931 region, the $3,900 mark, and late October trough, around the $3,886 region.

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 strongest against the Canadian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.69%-0.72%-0.33%-0.23%-0.80%-1.38%-0.54%
EUR0.69%-0.03%0.38%0.46%-0.13%-0.70%0.17%
GBP0.72%0.03%0.39%0.50%-0.09%-0.67%0.20%
JPY0.33%-0.38%-0.39%0.10%-0.54%-1.19%-0.19%
CAD0.23%-0.46%-0.50%-0.10%-0.59%-1.16%-0.32%
AUD0.80%0.13%0.09%0.54%0.59%-0.57%0.31%
NZD1.38%0.70%0.67%1.19%1.16%0.57%0.88%
CHF0.54%-0.17%-0.20%0.19%0.32%-0.31%-0.88%

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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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