Gold price drifts lower amid elevated US bond yields, Fed rate cut uncertainty

• Gold price ticks lower on Monday following the post-NFP price action whipsaw.
• Elevated US bond yields act as a tailwind for the USD and exert pressure on the XAU/USD.
• A softer risk tone should help limit deeper losses as the focus shifts to the US inflation data.

Gold price (XAU/USD) staged a goodish intraday recovery of around $40 from over a two-week low touched in the aftermath of the better-than-expected monthly employment details on Friday, albeit lacked any follow-through. The momentum ran out of steam near the $2,064 region amid the uncertainty about the Federal Reserve’s (Fed) rate-cut trajectory, which, in turn, held back traders from placing aggressive directional bets around the non-yielding yellow metal.

The incoming US economic data pointed to a still-resilient economy, which, along with hawkish remarks by Fed officials, dashed hopes for a more aggressive policy easing by the central bank. This remains supportive of elevated US Treasury bond yields, which act as a headwind for the US Dollar (USD) and exert downward pressure on the Gold price during the Asian session on Monday. That said, a softer risk tone might help limit losses for the safe-haven XAU/USD.

Concerns about a slow economic recovery in China, along with geopolitical risks, weigh on investors’ sentiment, which is evident from a fresh leg down in the US equity futures. Traders might also prefer to wait for the release of the US consumer inflation figures on Thursday to confirm the next leg of a directional move for the Gold price. This makes it prudent to wait for strong follow-through buying before positioning for the resumption of a one-week-old downtrend.

Daily Digest Market Movers: Gold price is undermined by reduced bets for aggressive Fed rate cuts

• Investors further scale back their expectations for an imminent shift in the Federal Reserve’s policy stance following the release of a robust December monthly US jobs report on Friday.
• The US economy added 216K new jobs last week as compared to 170K expected, while the unemployment rate held steady at 3.7% vs. consensus estimates for an uptick to 3.8%.
• Adding to this, US Factory Orders surprised to the upside and grew more than expected in November, by 2.6%, after declining 3.4% in October (revised slightly up from -3.6%).
• Separately, the Institute for Supply Management (ISM) survey indicated that the US services sector, which accounts for more than two-thirds of the economy, slumped last month.
• The ISM’s Non-Manufacturing Index dropped to 50.6 in December – the lowest reading since May – and the employment sub-component plunged to 43.3 – the lowest since July 2020.
• Dallas Fed President Lorie Logan noted that if the US central bank does not maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up, reversing progress.
• This comes after Richmond Fed President Thomas Barkin last week 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 above the 4.0% threshold, which acts as a tailwind for the US Dollar and is seen undermining the Gold price.
• The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at the March meeting and a cumulative of five 25 basis points (bps) rate cuts for 2024.
• China’s economic woes, along with an escalation of tensions in the Middle East, could lend some support to the safe-haven XAU/USD ahead of the US consumer inflation figures on Thursday.
• Lebanese militant group Hezbollah sent a barrage of rockets into northern Israel in what it called a “preliminary response” to the assassination of Hamas senior leader Saleh al-Arouri on Tuesday.
• The markets react little to an agreement between House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer on topline spending level, which breaks the deadlock to avoid a shutdown.

Technical Analysis: Gold price seems vulnerable, multi-week low around $2,024 area holds the key

From a technical perspective, any subsequent slide is likely to find some support near the $2,030 level ahead of Friday’s swing low, around the $2,024 area. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the Gold price to the 50-day Simple Moving Average (SMA), currently around the $2,012-2,011 area. This is followed by the $2,000 psychological mark, which if broken should pave the way for a further near-term depreciating move.

On the flip side, momentum beyond the $2,050 immediate hurdle might continue to confront stiff resistance near the $2,064-2,065 area ahead of the $2,077 zone. A sustained strength beyond the said hurdles might prompt a short-covering rally and allow the Gold price to aim back towards reclaiming the $2,100 round-figure mark. Some follow-through buying will negate any negative outlook and shift the near-term bias back in favour of bullish traders.