- Gold price attracts some dip-buying on Monday amid a modest US Dollar downtick.
- Geopolitical tensions and looming recession risks also benefit the safe-haven metal.
- The prevalent risk-on environment could act as a headwind and cap any further gains.
Gold price (XAU/USD) edges higher during the Asian session on Monday and for now, seems to have stalled last week’s modest pullback from the vicinity of the $2,050 area. The Federal Reserve (Fed) last Wednesday signaled an end to its monetary policy tightening cycle and the so-called “dot plot” penciled in at least three 25 basis points (bps) rate cuts in 2024. This, in turn, fails to assist the US Dollar (USD) to build on Friday’s goodish recovery move from its lowest level since July 31. Apart from this, geopolitical risks and worries about a deeper economic downturn, particularly in China and the Eurozone, act as a tailwind for the safe-haven precious metal.
That said, top Fed officials tried to temper speculation about early interest rate cuts on Friday. This, along with the prevalent risk-on environment might keep a lid on any meaningful appreciating move for the Gold price. Against the backdrop of the Fed’s dovish pivot last week, the optimistic outlook from China’s Central Finance Office continues to boost investors’ confidence. This is evident from a generally positive tone around the equity markets and should cap the upside for the XAU/USD in the absence of any relevant market-moving economic releases from the US. The downside, however, remains cushioned in the wake of the Fed’s dovish pivot last week.
Daily Digest Market Movers: Gold price is underpinned by Fed rate cut bets and a softer US Dollar
- New York Federal Reserve President John Williams, in an interview with CNBC, said on Friday that we aren’t really talking about rate cuts right now and it’s premature to speculate about them.
- William added that the economic data can move in surprising ways and the central bank needs to be ready to tighten policy further if the progress on inflation were to stall or reverse.
- Separately, Atlanta Fed President Raphael Bostic echoed the view, saying that rate cuts were not an imminent thing and that the first cuts could come sometime in the third quarter of 2024.
- The markets, however, seem convinced that the Fed will ease its policy by the first half of 2024, which caps the US Dollar bounce from over a four-month low and lends support to the Gold price.
- The flash PMI prints released on Friday showed that business activity in Germany deteriorated during December, increasing the risk of a recession in the Eurozone’s largest economy.
- North Korea fired at least one unidentified type of ballistic missile on Monday, just hours after a separate launch of a short-range missile late Sunday night.
- China’s state media Xinhua, citing a government readout, reported that the economy is expected to see more favourable conditions and more opportunities than challenges in 2024.
- This, along with the Fed’s dovish pivot, remains supportive of the underlying bullish sentiment across the global equity markets and might keep a lid on the safe-haven precious metal.
Technical Analysis: Gold price needs to move beyond the $2,050 level for bulls to regain control
From a technical perspective, any subsequent move up is likely to confront stiff resistance near the $2,040 supply zone, above which the Gold price could aim to retest last week’s swing high, around the $2,049-2,050 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for a move towards the next relevant barrier near the $2,072-2,073 area. The momentum could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.
On the flip side, the $2,015-2,010 horizontal resistance breakpoint might continue to protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable to challenge the 50-day SMA support, currently pegged near the $1,982-1,981 region. This is followed by last week’s swing low, around the $1,973 area, and the 200-day SMA, near the $1,956-1,955 zone, which if broken decisively will shift the near-term bias in favour of bearish traders.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.19% | -0.02% | -0.28% | -0.14% | -0.50% | -0.14% | |
| EUR | 0.15% | -0.03% | 0.13% | -0.13% | 0.02% | -0.34% | 0.02% | |
| GBP | 0.18% | 0.03% | 0.17% | -0.09% | 0.05% | -0.31% | 0.05% | |
| CAD | 0.02% | -0.14% | -0.17% | -0.26% | -0.12% | -0.48% | -0.12% | |
| AUD | 0.27% | 0.13% | 0.11% | 0.27% | 0.16% | -0.21% | 0.16% | |
| JPY | 0.13% | -0.02% | -0.05% | 0.12% | -0.15% | -0.37% | -0.01% | |
| NZD | 0.50% | 0.34% | 0.31% | 0.47% | 0.21% | 0.36% | 0.36% | |
| CHF | 0.14% | -0.01% | -0.04% | 0.12% | -0.14% | 0.00% | -0.36% |
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).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Source: https://www.fxstreet.com/news/gold-price-bulls-have-the-upper-hand-amid-dovish-fed-outlook-bearish-us-dollar-202312180403