XAU/USD leaps high amid dovish Fed bets, US yields hit multi-month lows

• The XAU/USD trades closely to the $2,070 level, registering strong gains.
• Markets project as many as six Fed rate hikes in 2024,  which shook down the US Treasury yields.
• US Jobless Claims on Thursday may fuel volatility in the bond market.

In Wednesday’s session, the XAU/USD Gold Spot price jumped towards $2,070, marking a 0.50% gain. This essentially was in response to growing speculation of dovish bets towards the Federal Reserve (Fed), coupled with yields seemingly stuck in multi-month lows, which favored the yellow’s metal advance.

With the US Personal Consumption Expenditures (PCE) price index seeing a sizeable drop in November, optimism is growing for potential initial rate cuts from the Federal Reserve at the beginning of next year. This also comes after consecutive decelerating Consumer Price Index (CPI) readings alongside the Fed officials forecasting 75 bps of easing in 2024, which applied pressure to the US Dollar and the US bond yields. According to the CME FedWatch Tool, markets place bets on 15% odds of a cut in January and are pricing in 50 bps of easing between March and May.

In line with that, US bond yields are declining and reached multi-month lows. The 2-year rate is 4.23% (low since May), while the 5 and 10-year yields are trading at 3.78% each, their lowest since June and July, respectively. This downturn positively affects the price of non-yielding metals, as bond yields are often viewed as the opportunity cost of holding them.

On Thursday, the US will report weekly Jobless Claims figures, which may fuel volatility in the USD and bond market price dynamics.

XAU/USD levels to watch

The daily chart hints that the metal is exhibiting a bullish inclination. The Relative Strength Index (RSI) is approaching overbought territory which typically signifies a strong buying momentum, but also caution as it may also indicate potential short-term- trend reversal if the index crosses into the overbought region.

Further evidence of bullish sentiment is shown in the Moving Average Convergence Divergence (MACD) indicator. The presence of rising green bars signifies increased buyer enthusiasm, potentially paving the way for a continuation of the uptrend.

Providing a broader picture, the metal’s position above the 20, 100, and 200-day Simple Moving Averages (SMAs) confirms the dominance of the buyers in the overall trend. Being above these SMA levels typically suggests a bullish market environment.

Support Levels: $2,060, $2,050, $2,030 (20-day SMA).
Resistance Levels: $2,081, $2,100, $2,115.

XAU/USD daily chart