- Gold price struggles to gain any meaningful traction and oscillates in a narrow band on Wednesday.
- The USD builds on its recovery move and is seen as a key factor acting as a headwind on the metal.
- The downside seems cushioned in the wake of the uncertainty over the Fed’s future rate-hike path.
- Traders now await Fed Chair Jerome Powell’s scheduled speech before placing fresh directional bets.
Gold price (XAU/USD) lacks any firm intraday directional bias on Wednesday and seesaws between tepid gains/minor losses, below the $1,970 level through the first half of the European session on Wednesday. The precious metal, however, manages to hold its neck above a two-week low, around the $1,957-1,956 region touched on Tuesday. Traders now seem reluctant and are seeking more clarity on the Federal Reserve’s (Fed) rate-hike path before placing fresh directional bets.
A slew of influential FOMC members acknowledged the US economic resilience and struck a more hawkish tone this week. This, in turn, fuels uncertainty over the next policy move. Hence, Fed Chair Jerome Powell's speech later today and on Thursday will be scrutinized closely for fresh cues about the central bank's near-term policy outlook. This, in turn, will play a key role in influencing the non-yielding Gold price and help in determining the next leg of a directional move.
Ahead of the key event risk, the US Dollar (USD) is seen building on this week's goodish rebound from its lowest level since September 20 and gaining some positive traction for the third successive day. This acts as a headwind for the Gold price, though a generally softer tone around the equity markets, along with growing concerns about the worsening economic conditions in China, continues to lend some support and limit losses for the safe-haven XAU/USD.
Daily Digest Market Movers: Gold price continues with its struggle to gain any meaningful traction
- The US Dollar stands tall near the weekly top and exerts some pressure on the Gold price, though the downside seems limited amid the uncertainty over the Federal Reserve's next policy move.
- The US central bank last week noted that financial conditions may be tight enough already to control inflation. Investors took this as a sign that the Fed was done with its policy-tightening campaign.
- Furthermore, the softer US employment details released on Friday pointed to easing labour market conditions and reaffirmed expectations that the Fed will not hike interest rates any further.
- Comments by several Fed officials this week, however, fuelled uncertainty on whether rates had reached their peak or there is a need to hike interest further to bring inflation back to the 2% target.
- Minneapolis Fed President Neel Kashkari said on Tuesday that the labor market continues to be quite robust and with economic activity running this hot, the central bank's job is not yet done.
- Fed Governor Michelle Bowman repeated her view that the US central bank will likely need to raise short-term interest rates again to bring inflation down to the 2% target in a timely way.
- Chicago Fed President Austan Goolsbee stressed that any change in the rate stance will primarily be influenced by progress on the inflation rate, though he refrained from speculating on future rates.
- The market attention now shifts to Fed Chair Jerome Powell's speech, which will be scrutinized for cues about the next policy move and provide a fresh directional impetus to the XAU/USD.
Technical Analysis: Gold price manages to hold above a two-week low, around $1,957-1,956 touched on Tuesday
From a technical perspective, the overnight swing low, around the $1,957-1,956 area, now seems to protect the immediate downside. A convincing break below the area might expose the 200-day Simple Moving Average (SMA) support, currently pegged near the $1,934 area, before the Gold price eventually drops to the $1,926-1,923 confluence, comprising the 100- and 50-day SMAs.
On the flip side, any meaningful recovery attempt now seems to confront stiff resistance near the $1,980 area. This is followed by the $1,992 hurdle ahead of the $2,000 psychological mark and the post-NFP swing high, around the $2,004 area. Bulls are likely to wait for some follow-through buying beyond the $2,009 region, or a multi-month high touched in October, before placing fresh bets.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.39% | 0.76% | 0.80% | 1.21% | 0.69% | 0.99% | 0.17% | |
| EUR | -0.40% | 0.38% | 0.41% | 0.82% | 0.29% | 0.59% | -0.23% | |
| GBP | -0.77% | -0.38% | 0.03% | 0.43% | -0.09% | 0.21% | -0.62% | |
| CAD | -0.80% | -0.41% | -0.03% | 0.41% | -0.12% | 0.18% | -0.64% | |
| AUD | -1.23% | -0.83% | -0.45% | -0.42% | -0.53% | -0.23% | -1.06% | |
| JPY | -0.70% | -0.31% | -0.15% | 0.14% | 0.51% | 0.29% | -0.52% | |
| NZD | -1.00% | -0.60% | -0.22% | -0.19% | 0.23% | -0.30% | -0.82% | |
| CHF | -0.17% | 0.23% | 0.60% | 0.63% | 1.04% | 0.52% | 0.82% |
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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