- Gold price attracts some buyers on Tuesday and draws support from a weaker US Dollar.
- A fall in consumer inflation expectations boosts Fed rate-cut bets and undermines the buck.
- Elevated US bond yields and a positive risk tone cap gains ahead of the US CPI on Thursday.
Gold price (XAU/USD) regains positive traction during on Tuesday and recovers further from a near three-week low, around the $2,017-2,016 region touched the previous day. A fall in US Consumer Inflation Expectations boosts market bets that the Federal Reserve (Fed) may start cutting interest rates as early as March. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal, though the intraday uptick lacks bullish conviction.
The upbeat US monthly employment details released last Friday pointed to a still resilient labor market and fueled hopes for a soft landing. This, along with the recent hawkish remarks by several Fed officials, raised uncertainty about the possibility of an early interest rate cut by the US central bank. This allows the yield on the benchmark 10-year US government bond to hold above 4.0%, which lends some support to the US Dollar (USD) and caps gains for the Gold price.
Apart from this, a generally positive tone around the Asian equity markets turns out to be another factor holding back bulls from placing aggressive bets around the safe-haven XAU/USD. Investors also seem reluctant and prefer to wait for the latest US consumer inflation figures for cues about the Fed’s future policy moves before determining the near-term trajectory. This warrants caution before positioning for a further recovery from a near three-week low touched on Monday.
Daily Digest Market Movers: Gold price ticks higher amid uncertainty over Fed rate-cut path
- The New York Federal Reserve said in a report on Monday that US consumers’ projection of inflation over the short run fell to the lowest level in nearly three years in December, which undermines the US Dollar and benefits the Gold price.
- Inflation one year from now is expected to be at 3%, marking the lowest reading since January 2021, while inflation three years from now is seen at 2.6% and price pressures five years ahead were at 2.5% versus 2.7% in November.
- The data reaffirms expectations for an imminent shift in the Federal Reserve’s policy stance, though investors continue scaling back their expectations for more aggressive policy easing in the wake of a still-resilient US economy.
- Atlanta Fed President Raphael Bostic noted that inflation has declined more than expected and that the US central bank still needs to give tight policy time to work on cooling off inflation. Bostic sees two 25 bps cuts by year-end 2024.
- Fed Governor Michelle Bowman said that the current policy stance appears sufficiently restrictive and that inflation could fall further with the policy rate held steady for some time, though the upside inflation risks remain.
- This raises uncertainty over the possibility of early interest rate cuts by the Fed, which assist the yield on the benchmark 10-year US government bond to hold steady above the 4.0% threshold and might cap the non-yielding yellow metal.
- The market focus, meanwhile, remains glued to the US consumer inflation figures on Thursday, which should help determine the next leg of a directional move for the XAU/USD.
Technical Analysis: Gold price trades with modest gains just above a multi-week trough
From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,040 horizontal zone, above which the Gold price could aim to retest Friday’s swing high, around the $2,063-2,064 region. The next relevant hurdle is pegged near the $2,077 area, which if cleared decisively will negate any near-term negative outlook and allow bulls to reclaim the $2,100 round figure.
On the flip side, the overnight swing low, around the $2,017-2016 region, now seems to protect the immediate downside ahead of the 50-day Simple Moving Average (SMA), currently near the $2,012-2,011 area. This is followed by the $2,000 psychological mark, below which the Gold price could accelerate the slide towards the $1,988-1,986 intermediate support en route to the December low, around the $1,973 area and the $1,962 confluence, comprising the 100- and the 200-day SMAs.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.12% | -0.10% | -0.02% | -0.09% | -0.42% | -0.13% | -0.13% | |
| EUR | 0.12% | 0.02% | 0.10% | 0.00% | -0.31% | 0.00% | -0.05% | |
| GBP | 0.09% | -0.01% | 0.08% | -0.01% | -0.33% | -0.04% | -0.04% | |
| CAD | 0.01% | -0.11% | -0.09% | -0.10% | -0.42% | -0.12% | -0.12% | |
| AUD | 0.09% | -0.02% | 0.01% | 0.09% | -0.32% | -0.02% | -0.05% | |
| JPY | 0.42% | 0.30% | 0.33% | 0.41% | 0.32% | 0.29% | 0.29% | |
| NZD | 0.13% | 0.00% | 0.03% | 0.10% | 0.01% | -0.31% | -0.02% | |
| CHF | 0.15% | 0.02% | 0.05% | 0.13% | 0.04% | -0.28% | 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-recovers-further-from-multi-week-low-upside-potential-seems-limited-202401090413