- Gold price moves away from over a one-week low touched on Wednesday, albeit lacks follow-through.
- The USD holds steady just below a more than two-week high and acts as a headwind for the XAU/USD.
- Traders now look to the US ADP report for a fresh impetus ahead of the crucial US jobs data on Friday.
Gold price (XAU/USD) dived to a one-and-half-week low on Wednesday in the wake of rising US Treasury bond yields and a stronger US Dollar. The US bond yields, however, started losing traction after minutes of the December 12-13 FOMC meeting reflected a consensus among policymakers that inflation is under control and the downside risks to the economy associated with an overly restrictive stance. This, along with a generally weaker tone around the equity markets, allowed the precious metal to attract some buyers near the $2,030 area and edge higher during the early part of trading action on Thursday.
The minutes, however, did not provide any clues about the timing of when the Fed will start cutting interest rates. This comes on the back of Richmond Fed President Thomas Barkin’s remarks that interest rate hikes remain on the table and act as a tailwind for the US bond yields, which keep the USD close to over a two-week high and cap the Gold price heading into the European session. Traders, meanwhile, seek more clarity on the Fed’s policy outlook. Hence, the focus will remain glued to the release of the closely-watched US monthly employment details – popularly known as Nonfarm Payrolls (NFP) report on Friday.
In the meantime, Thursday’s US economic docket, featuring the ADP report on private-sector employment and the usual Initial Jobless Claims, will be looked upon for short-term trading opportunities later during the early North American session. Nevertheless, doubts about the possibility of early interest rate cuts by the Fed might continue to hold back traders from placing aggressive bullish bets around the non-yielding Gold price. This, in turn, warrants some caution before confirming that a one-week-old downtrend has run its course and positioning for any further intraday appreciating move.
Daily Digest Market Movers: Gold price struggles to capitalize on its modest intraday gains
- Bets that the Federal Reserve will cut rates in March, along with geopolitical tensions, help the Gold price to build on the overnight bounce from over a one-week low.
- The December FOMC meeting minutes revealed that members generally viewed the addition of ‘any’ to the statement as an indication that policy rates are likely near peak.
- Policymakers observed progress on inflation, though noted that circumstances might warrant keeping interest rates at the current level longer than they currently anticipate.
- Moreover, the minutes did not provide direct clues about the timing of when a series of interest rate cuts in 2024 might commence.
- Richmond Fed President Thomas Barkin on Wednesday expressed confidence that the economy is on its way to a soft landing and said that rate hikes remain on the table.
- The yield on the benchmark 10-year US government bond holds steady below 4.0%, which should act as a tailwind for the US Dollar and cap the non-yielding yellow metal.
- The Institute for Supply Management (ISM) said on Wednesday that the pace of decline in the US manufacturing sector slowed amid a modest rebound in production.
- The US ISM Manufacturing PMI improved to 47.4 last month from 46.7 in November, though remained in contraction territory for the 14th consecutive month.
- The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) showed that employment listings fell to 8.79 million in November – the lowest since March 2021.
- Traders now look to the US ADP report, which is expected to show that private-sector employers added 115K jobs in December as compared to the 103K in the previous month.
- The market focus, however, will remain glued to the official monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday.
Technical Analysis: Gold price languishes near one-and-half-week low, seems vulnerable below $2,050
From a technical perspective, the overnight breakdown and acceptance below the $2,050-$2,048 resistance-turned-support favours bearish traders. That said, oscillators on the daily chart are still holding in the positive territory and warrant some caution. Hence, it will be prudent to wait for some follow-through selling below the overnight swing low, around the $2,030 area before positioning for any further depreciating move.
The Gold price might then accelerate the slide towards the 50-day Simple Moving Average (SMA), currently around the $2,012-2,011 area, en route to the $2,000 psychological mark. A sustained break below the latter might shift the near-term bias in favour of bearish traders.
On the flip side, momentum back above the $2,050 region now seems to confront stiff resistance near the $2,064-2,065 area. The next relevant hurdle is pegged near the $2,077 horizontal zone, which if cleared decisively should allow the Gold price to aim back towards reclaiming the $2,100 mark.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.16% | 0.44% | 0.66% | 1.08% | 1.64% | 0.84% | 0.91% | |
| EUR | -1.01% | -0.55% | -0.36% | 0.08% | 0.49% | -0.17% | -0.16% | |
| GBP | -0.46% | 0.55% | 0.22% | 0.63% | 1.27% | 0.38% | 0.38% | |
| CAD | -0.66% | 0.33% | -0.03% | 0.41% | 0.98% | 0.16% | 0.19% | |
| AUD | -1.09% | -0.08% | -0.63% | -0.44% | 0.38% | -0.26% | -0.22% | |
| JPY | -1.65% | -0.44% | -1.12% | -0.79% | -0.40% | -0.65% | -0.79% | |
| NZD | -0.83% | 0.19% | -0.38% | -0.17% | 0.27% | 0.65% | 0.03% | |
| CHF | -0.85% | 0.17% | -0.37% | -0.17% | 0.25% | 0.78% | 0.01% |
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).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/gold-price-trades-with-mild-positive-bias-upside-potential-seems-limited-202401040420