Gold trades with mild positive bias on softer risk tone, lacks bullish conviction

• Gold price turns positive for the second successive day, though the upside potential seems limited. 
• Geopolitical risks, China’s economic woes and a softer risk tone benefit the safe-haven commodity.
• Elevated US bond yields act as a tailwind for the USD and might cap the non-yielding yellow metal. 
• Traders might also prefer to wait on the sidelines ahead of the key US CPI report, due on Thursday.

Gold price (XAU/USD) attracts some dip-buying near the $2,024-2,023 area during the early European session on Wednesday and is now trading with a positive bias for the second straight day. Against the backdrop of geopolitical risks stemming from the Israel-Hamas war and worries over a slow economic recovery in China, reduced beets for an early interest rate cut by the Federal Reserve (Fed) weigh on investors’ sentiment. This is evident from a weaker tone around the equity markets and lends some support to the safe-haven precious metal.

That said, diminishing odds for a more aggressive Fed policy easing in 2024, in the wake of a still-resilient economy, might hold back bulls from placing aggressive bets around the non-yielding yellow metal. Furthermore, the US Dollar (USD) trades just below a multi-week high touched last Friday and remains well supported by elevated US Treasury bond yields. This might further contribute to capping the US Dollar-denominated commodity as traders keenly await the US consumer inflation figures for cues about the Fed’s rate-cut path. 

Daily Digest Market Movers: Gold price struggles to build on intraday bounce as Fed rate cut uncertainty remains

• The uncertainty over the timing of when the Federal Reserve will start cutting interest rates holds back traders from placing fresh directional bets around the Gold price.
• The New York Fed reported on Monday that US consumers’ projection of inflation fell to the lowest level in nearly three years in December, lifting bets for an imminent shift in the Fed’s policy stance
• Meanwhile, the resilient US economy, which is experiencing above-target inflation, gives the US central bank more headroom to keep interest rates higher for longer.
• This allows the yield in the benchmark 10-year US government bond to hold above the 4.0% threshold, which lends support to the US Dollar and caps the yellow metal.
• Bearish traders, however, seem reluctant and prefer to wait on the sidelines ahead of the latest US consumer inflation figures, due for release on Thursday.
• Citing a senior US Defense Department official, CNBC reported late Tuesday that Iran-backed Houthi militants launched the largest attack to date on commercial merchant vessels.
• A senior People’s Bank of China official said this Wednesday that the central bank may use monetary policy tools to provide strong support for reasonable credit growth.
• The official added that the PBoC will strengthen its counter-cyclical and cross-cycle policy adjustments to create favourable conditions for the country’s economic growth.
• There isn’t any relevant market-moving macro data scheduled for release from the US on Wednesday, leaving the XAU/USD at the mercy of the USD price dynamics.

Technical Analysis: Gold price remains below $2,040-2,042 resistance, bearish pontential seems intact

From a technical perspective, the multi-week low, around the $2,017 area touched on Monday, which now coincides with the 50-day Simple Moving Average (SMA), should protect the immediate downside. A convincing break below could make the Gold price vulnerable to accelerate the slide towards the $2,000 psychological mark. Some follow-through selling will expose the December swing low, around the $1,973 region, before the XAU/USD eventually drops to the $1,965-1,963 confluence, comprising the 100- and 200-day SMAs.

On the flip side, the $2,040-2,042 zone might continue to act as an immediate strong barrier, above which the Gold price could aim to retest Friday’s swing high, around the $2,064 area. The next relevant hurdle is pegged near the $2,077 area, which if cleared decisively will negate any near-term negative outlook and set the stage for a move towards reclaiming the $2,100 round figure.