- Gold price struggles for a direction ahead of US core PCE price index data.
- Fed Bostic sees no urgency for interest-rate cuts amid sheer strength in the US economy.
- Fed Barkin remains data-dependent for rate cuts in 2024.
Gold price (XAU/USD) slips marginally below $2,040 ahead of the United States core Personal Consumption Expenditure price index (PCE) data for November, which will be released on Friday. The underlying inflation data is expected to soften further amid higher interest rates by the Federal Reserve (Fed).
Despite warnings from Fed policymakers that the central bank is currently focusing on keeping interest rates restrictive to ensure a return of inflation to 2%, investors lean toward investing in Gold due to optimism over rate cuts in 2024. Contrary to the median projection of three rate cuts by the Fed in its monetary policy announcement last week, Atlanta Fed Bank President Raphael Bostic sees only two rate cuts.
Daily Digest Market Movers: Gold price consolidates while US Dollar retreats
- Gold price faces nominal sell-off near 15-day high around $2,040.00. The broader appeal remains upbeat as expectations of rate cuts by the Federal Reserve in 2024 is outplaying the stance of keeping interest rates restrictive until price stability is ensured.
- The precious metal remains broadly strong despite the fact that Fed policymakers are playing down expectations of early rate cuts amid resilience in the United States economy.
- The majority of Fed policymakers have commented that the Fed is focused on bringing down inflation to 2% rather than rate cuts in 2024.
- Atlanta Fed Bank President Raphael Bostic said on Monday that there is no urgency for the central bank to lower borrowing costs. The priority of the Fed is to that inflation retreats to 2% as sheer strength in the US economy could delay progress in abating price pressures.
- Bostic added that rate cuts would be required in advance of underlying inflation returning to 2% to avoid any unnecessary blow in employment numbers. Bostic reiterated on Tuesday that he expects two rate cuts in 2024.
- As per the CME Fedwatch tool, market participants see almost a 70% chance in favour of a first rate cut by 25 basis points (bps) in March. The likelihood of a second rate cut in May is at 60%.
- On the contrary, Richmond Fed Bank President Thomas Barkin said that rate cuts depend on how the economy performs in 2024. While asked about economic prospects, Barkin commented that the economy is well-positioned with easing inflation and a steady Unemployment Rate.
- The US Dollar Index (DXY) found intermediate support near 102.00 after failing to extend recovery above 102.60 as rate cut expectations have dampened its fundamentals.
- This week, investors will focus on the core PCE price index data for November, which is scheduled for Friday.
- As per the consensus, monthly core PCE data is seen growing at a steady pace of 0.2%. On an annual basis, the Fed’s preferred inflation tool is expected to decline to 3.3% against the former reading of 3.5%.
- Apart from the Fed’s preferred inflation gauge, investors will focus on the US Durable Goods Orders data for November. Investors expect the demand for core goods grew by 2.2% against 5.4% fall in October.
- Meanwhile, geopolitical tensions between Israel and Palestine have started again, which would infuse some strength in bullions.
- United Nations Security Council is in talks for a ceasefire in Gaza to deliver humanitarian aid to civilians.
Technical Analysis: Gold price trades below $2,040
Gold price faces selling pressure but remains inside Tuesday’s trading range as investors await the Fed’s preferred inflation gauge for further action. The broader appeal for Gold is bullish as its price is confidently sustaining above the 20-day and 50-day Exponential Moving Averages (EMAs). Momentum oscillators, namely the Relative Strength Index (RSI) (14), is hovering near 60.00. A decisive break above the same would trigger a bullish momentum.
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-looks-for-further-upside-as-optimism-over-fed-rate-cuts-deepen-202312201007