- Gold price gains traction for the second straight day amid dovish Fed expectations.
- The markets are now pricing in the possibility of a rate cut in the first half of 2024.
- The XAU/USD remains on track to register gains for the first time in three weeks.
Gold price (XAU/USD) scales higher for the second straight day – also marking the fourth day of a positive move in the previous five – and retests a nearly two-week high, around the $1.987-1,988 region during the first half of the European session. The incoming US macro data, including the softer US CPI and PPI figures, reaffirmed expectations that the Federal Reserve (Fed) is done raising interest rates. Moreover, the markets are now pricing in the possibility of rate cuts in the first half of 2024. This, in turn, drags the benchmark 10-year US Treasury yield to a more than two-month low and is seen underpinning the non-yielding yellow metal.
Expectations of a dovish shift by the US central bank, meanwhile, fail to assist the US Dollar (USD) to register any meaningful recovery from its lowest level since September 1 touched on Tuesday. Apart from this, mixed signals from high-level US-China talks lend additional support to the safe-haven Gold price and support prospects for a further near-term appreciating move. Investors now look to the US housing market data and Fedspeak for a fresh impetus. Nevertheless, the XAU/USD remains on track to register weekly gains of nearly 2.5% and snap a two-week losing streak to its lowest level since October 18 set on Monday.
Daily Digest Market Movers: Gold price retests two-week high amid rising Fed rate cut bets
- Gold has now recovered over $50 from a multi-week low, around the $1,932-1,931 area touched on Monday in the wake of bets that the Federal Reserve is done raising interest rates.
- The US CPI report released earlier this week indicated that consumer inflation was cooling faster than anticipated, while the US Jobless Claims on Thursday pointed to a cooling labour market.
- The headline CPI was unchanged in October, while the yearly rate registered its smallest rise in two years and decelerated sharply to 3.2% from 3.7% in September.
- The number of Americans who filed for unemployment insurance for the first time rose to 231K during the week of November 11 from the 218K previous (revised from 217K).
- Furthermore, the recent slump in Oil prices is expected to have a disinflationary effect, which should bring the Fed closer to its 2% target and allow it to soften its hawkish stance.
- A slew of influential Fed officials this week acknowledged the progress to curb inflation, reinforcing the idea that the policy-tightening campaign may soon be over.
- Traders now seem convinced that interest rates in the US will not go higher. Furthermore, the CME Group's FedWatch Tool indicates the rising possibility of the first rate cut by March 2024.
- The yield on the benchmark 10-year US government bond dropped to a near two-month low on Thursday and continues to undermine the US Dollar, lending support to the Gold price.
- US President Joe Biden and his Chinese counterpart Xi Jinping agreed to reopen military channels, prompting some improvement in relations between the world's two largest economies.
- Hours after the summit, Biden called Xi a “dictator”, which might have possibly annoyed Chinese authorities.
- Traders now look to the US housing market data and a scheduled speech by Chicago Fed President Austan Goolsbee for short-term opportunities on the last trading day of the week.
Technical Analysis: Gold price inches closer to the $2,000 psychological mark, multi-month peak
From a technical perspective, a sustained move and acceptance above the $1,980 level might have already set the stage for further gains. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the upside and supports prospects for a move towards reclaiming the $2,000 psychological mark. The momentum could get extended further towards a multi-month peak, around the $2,009-$2,010 area, which if cleared decisively will be seen as a fresh trigger for bullish traders.
On the flip side, the $1,975 region now seems to protect the immediate downside ahead of the $1,970 level and the $1,962-1,961 support zone. Some follow-through selling, leading to a subsequent break below the $1,955 area, might shift the bias in favour of bearish traders and make the Gold price vulnerable to accelerate the slide back towards the 200-day Simple Moving Average (SMA), currently around the $1,937-1,936 region. This is followed by the 100- and the 50-day SMAs confluence, around the $1,929-1,927 zone, which if broken should pave the way for some meaningful depreciating move in the near term.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.53% | -1.46% | -0.35% | -1.59% | -0.60% | -1.11% | -1.54% | |
| EUR | 1.51% | 0.08% | 1.16% | -0.06% | 0.92% | 0.42% | -0.01% | |
| GBP | 1.44% | -0.07% | 1.10% | -0.13% | 0.85% | 0.36% | -0.08% | |
| CAD | 0.35% | -1.17% | -1.10% | -1.23% | -0.24% | -0.74% | -1.18% | |
| AUD | 1.57% | 0.06% | 0.12% | 1.21% | 0.97% | 0.48% | 0.05% | |
| JPY | 0.59% | -0.93% | -0.86% | 0.24% | -0.98% | -0.49% | -0.94% | |
| NZD | 1.11% | -0.43% | -0.36% | 0.73% | -0.48% | 0.49% | -0.44% | |
| CHF | 1.52% | 0.01% | 0.08% | 1.17% | -0.05% | 0.92% | 0.44% |
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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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