XAU/USD remains above $2,060 in a low-volume market

• Gold price moves sideways, indicating consolidation in market activity.
• Middle East conflict adds to the heightened risk-off sentiment, further boosting demand for safe-haven Gold.
• Friday softer US data contributed to the downward pressure on the Greenback.

Gold price hovers above $2,060 per troy ounce during the early European session on Wednesday. The upward movement in Gold prices is attributed to traders factoring in the potential for rate cuts by the Federal Reserve (Fed). Moreover, WIRP indicated that the market has priced in a 15% probability of a cut on January 31 and has fully priced in cuts by March 20, with six cuts fully priced in by the end of 2024.

The geopolitical tensions in the Middle East are adding to the heightened risk-off sentiment, further boosting demand for Gold as a safe-haven asset. Despite concerns, major shipping firms like Maersk and CMA CGM have started to return to the Red Sea, indicating a tentative normalization with the deployment of a multinational task force in the region. The decision of Hapag-Lloyd on resuming shipments is awaited on Wednesday. It’s worth noting that while there are concerns about Iran potentially closing the Gibraltar Strait, many doubt the feasibility of such an action.

The US Dollar Index (DXY) stays below 101.50 at the time of writing. The DXY appears to be under pressure, influenced by subdued US Treasury yields. Both the 2-year and 10-year yields on US bond coupons are trading lower, with figures at 4.29% and 3.88%, respectively, by the press time. The sentiments are further echoed by former Dallas Federal Reserve President Robert Kaplan, who highlighted the central bank’s past error of prolonged excessive accommodation. Kaplan believes that the Federal Reserve is now exercising caution to avoid making a similar mistake on the opposite end, ensuring not to become overly restrictive and potentially hinder economic growth.

The US Dollar faced additional pressure as the US Bureau of Economic Analysis (BEA) reports a softer Core Personal Consumption Expenditures (PCE) – Index for November. The US Core PCE Inflation (Year-on-Year) registered a growth of 3.2%, falling short of the expected 3.3% and the previous 3.4%. Meanwhile, the Month-on-Month (MoM) data maintained consistency at 0.1%, slightly below the market expectation of 0.2%. Looking ahead, Thursday is set to bring the release of Initial Jobless Claims and Pending Home Sales data from the United States (US), providing further insights into the economic landscape.