Gold dips ahead of US core PCE inflation, Durable Goods data

  • Gold price drops, slightly below $2,030, while the US Dollar remains subdued.
  • Fed Williams said interest-rate cuts are likely later this year.
  • Investors await the US core PCE inflation data for fresh guidance.

Gold price (XAU/USD) comes under pressure in Monday’s early New York session as investors turn cautious ahead of crucial economic releases this week. The upside in the Gold price remains restricted due to the Federal Reserve’s (Fed) hawkish narrative on interest rates, while tensions surrounding the Middle East crisis have capped the downside.

Fed policymakers have been reiterating that interest-rate cuts are likely later this year. However, no one is providing a detailed time frame as officials still lack evidence that inflation will sustainably come down to the 2% target.

The wosndie move in the Gold price is also linked to the US Dollar, which attempts to recover as investors shift their focus towards the US core Personal Consumption Expenditure (PCE) Price Index data for January. The Fed’s preferred inflation gauge, which will be published on Thursday, will likely influence market expectations for rate cuts. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to 103.80.

Daily digest market movers: Gold price is off from recent highs as yields, US Dollar rebounds

  • Gold price trades slightly below a two-week high of $2,040 as investors remain uncertain about the timing of rate cuts by the Federal Reserve. Due to sticky price pressures and the resilient US economy, the Fed is not interested in cutting down key lending rates early. This has been restricting the upside in Gold.
  • However, geopolitical uncertainty continues to provide support to bullions despite deepening talks over a ceasefire between Israel and Palestine. This week, Qatar is set to host ceasefire negotiations. Meanwhile, conditions in Gaza are deteriorating further as the delivery of humanitarian aid has fallen substantially in the last month due to intensified bombarding from the Israeli army.
  • In addition to that, the US and the UK militaries continue to attack the positions of Houthis in Yemen amid retaliation for attacking commercial vessels in the Red Sea.
  • On the United States front, investors will keenly focus on the core PCE Price Index data for January, which will likely influence market expectations for rate cuts by the Fed.
  • The CME FedWatch tool shows that rate cuts aren’t expected at the March and May policy meetings. There is a 54% chance that a rate cut by 25 basis points (bps) will be announced in the June meeting, which would push down interest rates in the range of 5.00%-5.25%.
  • Meanwhile, the maintenance of a hawkish narrative by Fed policymakers has been pushing back expectations of early rate cuts.
  • Last Week, Fed Governor Christopher Waller expressed caution regarding the pace of interest-rate cuts by saying that he wants to see inflation data for at least a couple of months more to judge whether stubborn figures in January were merely a short-term bump.
  • On the contrary, New York Fed President John Williams said his view on the economy has not significantly changed due to the one-time blip in January’s inflation data. When asked about the timing of rate cuts, John Williams said rate cuts could be announced later this year.

Technical Analysis: Gold price edges down from two-week high

Gold price trades inside Friday’s trading range below $2,030 as investors await more guidance on interest rates. The near-term trend is slightly bullish as Gold is trading above the 20-day and 50-day Exponential Moving Averages (EMAs), which are around $2,020.

The yellow metal trades in a Symmetrical Triangle chart pattern formed on a daily time frame. The precious metal is gradually approaching the downward-sloping border of the aforementioned pattern, which is plotted from the December 28 high at $2,088. The upward-sloping border of the chart pattern is placed from the December 13 low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.

US Interest rates FAQs

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.

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.

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.

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.

Source: https://www.fxstreet.com/news/gold-price-hovers-near-two-week-high-ahead-of-us-data-packed-week-202402261017