- Gold price recovers despite stronger-than-anticipated US Q4 GDP data.
- The US economy grew strongly by 3.3% while investors projected GDP expansion by 2%.
- US economic resilience would continue to strengthen the appeal for restrictive interest rates – a negative for Gold.
Gold price (XAU/USD) rises despite the United States Bureau of Economic Analysis (BEA) has reported that the economy grew at a higher pace of 3.3% against 2% as anticipated by the market participants. In the July-September quarter, the Gross Domestic Product (GDP) rose strongly by 4.9%. An upbeat GDP data is expected to weaken the consensus argument advocating early interest rate-cuts by the Federal Reserve (Fed).
Stronger US PMI data, reported by the S&P Global for January, upbeat GDP numbers and steady labor market conditions are reflecting resilience in the US economy, allowing Fed policymakers to designate rate-cuts from March as “premature”. The US economy is resilient amid strong labor demand due to robust consumer spending is setting a positive undertone for the economic outlook, offering an argument supporting restrictive monetary policy guidance.
Going forward, market participants will keenly focus on the core Personal Consumption Expenditure price index (PCE) data for December, which will be published on Friday. The underlying core inflation is preferred by Fed policymakers while deciding on the interest rate policy.
Daily Digest Market Movers: Gold price rises while US bond yields come under pressure
- Gold price recovers despite the US Q4 GDP data turns out stronger-than-projected. 10-year US Treasury yileds have dropped to near 4.13%.
- Robust economic expansion have deepened fears of a stubborn inflation outlook, which would encourage Federal Reserve policymakers for advocating a restrictive interest rate stance.
- As per the CME Fedwatch tool, the chances in favour of an interest rate cut by 25 basis-points (bps) in March have dropped to 42.4%.
- Bets supporting an unchanged interest rate decision by the Fed in Market ramped up this week due to strong recovery in the US PMIs in December. The Manufacturing PMI landed above the 50.0 threshold at 50.3, stronger than expectations and the former reading of 47.9.
- The Services PMI that represents the service sector, which accounts for two-thirds of the economy, rose to 52.9 from the prior reading of 51.4 and expectations of 51.0.
- A sharp recovery in the US economic activity indicates that the economy has started 2024 on a firm-footing and has improved the outlook for the entire year.
- Business confidence was uplifted by hopes of easing inflation, cost-of-living crises and a reduction in borrowing rates.
- Strong set of PMI numbers empowered the US Dollar to bounce back strongly. The appeal for the US Dollar could strengthen further if the US GDP data turns out stronger-than-anticipated.
- In additio to the US Q4 GDP, weekly Initial Jobless Claims (IJC) and Durable Goods Orders have allso been released. For the week ending January 19, individuals claiming jobless benefits for the first time were higher at 214K against expectations of 200K and the former reading of 189K.
- US Durable Goods Orders for Januray remained stagnant in December while investors projected an uptick of 1.1%. In November, the economic data grew strongly by 5.5%.
- After the US Q4 GDP data, market participants will shift their focus to the core underlying inflation data for December, which will be released on Friday.
- A stubborn core PCE price index data would strengthen the case for a restrictive monetary policy stance.
- Next week, the Fed is widely anticipated to maintain the status-quo but a stubborn inflation report would allow them to endorse higher interest rates at least until first-half of 2024 ends.
Technical Analysis: Gold price aims to recapture $2,020
Gold price trades inside Wednesday’s trading range as investors bide their time ahead of the US Q4 GDP data. The precious metal consolidates above $2,016 but remains below the 20-day Exponential Moving Average (EMA), which indicates that the near-term demand is downbeat. The 14-period Relative Strength Index (RSI) remains inside the 40.00-60.00 range, which shows less chances of a sharp move. A downside move could appear if the yellow metal fails to sustain above the psychological support of $2,000.
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-oscillates-ahead-of-us-q4-gdp-data-202401251029