- Gold price stages a modest recovery from a multi-week low, albeit struggles to capitalize on the move.
- Geopolitical risk, along with a modest USD downtick, turn out to be key factors acting as a tailwind.
- The uncertainty over the timing of when the Fed will cut rates holds back bulls from placing fresh bets.
- Investors now look to the crucial US CPI report for a fresh impetus ahead of the FOMC on Wednesday.
Gold price (XAU/USD) regains some positive traction on Tuesday and for now, seems to have snapped a two-day losing streak to a three-week low, around the $1,976-1,975 area touched the previous day. The precious metal sticks to its modest gains around the $1,987-1,988 region through the early part European session, albeit lacks follow-through buying amid the uncertainty over the timing of when the Federal Reserve (Fed) may start cutting rates next year. Hence, the focus will remain glued to the FOMC policy decision, scheduled to be announced on Wednesday.
Investors will closely scrutinize the accompanying monetary policy statement, especially the so-called "dot plot", and Fed Chair Jerome Powell's remarks for fresh cues about the near-term policy outlook. This, in turn, will influence the US Dollar price dynamics and help determine the next leg of a directional move for the non-yielding Gold price. Heading into the key central bank event risk, the latest US consumer inflation figures could infuse some volatility in the markets later during the early North American session and provide some impetus to the XAU/USD.
In the run-up to the crucial US data/central bank event risk, a fresh leg down in the US Treasury bond yiels prompts some USD selling and lends some support to the Gold price. Apart from this, persistent geopolitical tensions benefit the precious metal's safe-haven status and remain supportive of the modest intraday uptick.
Daily Digest Market Movers: Gold price is underpinned by a softer USD and geopolitical risks
- A US defense official stated on Tuesday that Iran-backed Houthi rebels in Yemen fired a land-based cruise missile, which, in turn, is seen lending some support to the safe-haven Gold price.
- The upbeat US employment figures released on Friday made traders bet that it could take the Federal Reserve until May to begin a series of interest-rate cuts next year and act as a headwind.
- A New York Fed survey on Monday showed that consumers anticipate inflation to be at 3.4% a year from now, down from 3.6% in October and marking the lowest reading since April 2021.
- The incoming data raised hopes that inflation could continue to decelerate without the economy falling into a recession and forced investors to trim their bets for the first Fed rate cut move in March 2024.
- Market participants, however, seem convinced that the US central bank is done with its policy-tightening campaign and may begin easing its monetary policy by the first half of the next year.
- According to CME group's FedWatch Tool, investors are still pricing in over a 40% chance of a March cut of at least 25 basis points (bps) and a nearly 75% chance of such a move in May 2024.
- This, in turn, fails to assist the US Dollar to capitalize on the post-NFP positive move and lends support to the non-yielding metal, though bulls seem reluctant ahead of the US consumer inflation data.
- The headline CPI is expected to rise by 0.1% in November and the yearly pace ticked down to 3.1%. The core gauge is anticipated to edge up from 0.2% to 0.3% MoM and hold steady at a 4.0% YoY rate.
- The market attention will then shift to the outcome of the highly-anticipated two-day FOMC monetary policy meeting, scheduled to be announced during the US session on Wednesday.
Technical Analysis: Gold price struggles to capitalize on its modest intraday gains, seems vulnerable
From a technical perspective, the XAU/USD, for now, seems to have stalled its recent sharp pullback from an all-time peak touched last week near the 50% Fibonacci retracement level of the June-December rally. The said support is pegged near the $1,975 area and is followed by the 50-day Simple Moving Average (SMA), currently around the $1,967 region. Some follow-through selling might expose the very important 200-day SMA, near the $1,951 zone, below which the Gold price could slide to the $1,938-1,936 region, representing the 61.8% Fibo. level. The latter should act as a key pivotal point as a convincing break below might suggest that the commodity has topped out and shift the near-term bias in favour of bearish traders.
On the flip side, any meaningful recovery might now confront stiff resistance near the $2,000 psychological mark. A sustained strength beyond has the potential to lift the Gold price towards the $2,015 intermediate hurdle en route to the $2,029-2,030 supply zone. The next relevant barrier is pegged near the $2,045 region, which if cleared decisively will suggest that the corrective slide has run its course. The XAU/USD could then extend the momentum further towards the $2,070-2,071 area before aiming to reclaim the $2,100 round figure.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.02% | -0.12% | -0.13% | -0.26% | -0.28% | -0.28% | -0.06% | |
| EUR | 0.02% | -0.10% | -0.10% | -0.25% | -0.29% | -0.27% | -0.06% | |
| GBP | 0.12% | 0.10% | 0.01% | -0.14% | -0.15% | -0.15% | 0.06% | |
| CAD | 0.11% | 0.11% | -0.01% | -0.12% | -0.17% | -0.17% | 0.05% | |
| AUD | 0.24% | 0.23% | 0.14% | 0.15% | -0.04% | -0.02% | 0.18% | |
| JPY | 0.28% | 0.26% | 0.16% | 0.15% | 0.05% | 0.02% | 0.21% | |
| NZD | 0.27% | 0.25% | 0.16% | 0.16% | 0.04% | -0.01% | 0.21% | |
| CHF | 0.06% | 0.05% | -0.05% | -0.04% | -0.18% | -0.23% | -0.21% |
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).
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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