- Gold price regained positive traction on Thursday and reversed a part of the overnight losses.
- Dovish Fed expectations keep the USD bulls on the defensive and lend support to the metal.
- The overnight late sell-off in the US equity markets further benefits the safe-haven XAU/USD.
Gold price (XAU/USD) posted modest losses on Wednesday and snapped a two-day winning streak to the weekly top, around the $2,047 region touched the previous day. The downfall was sponsored by a modest pickup in the US Dollar (USD) demand, though the overnight abrupt sell-off in the US equity markets helped limit the downside for the safe-haven metal. Looking at the broader picture, the commodity has been oscillating in a familiar range over the past week or so, awaiting a fresh catalyst before the next leg of a directional move.
Hence, the focus remains glued to Friday’s release of the US Core Personal Consumption Expenditure (PCE) Price Index. The key inflation data should influence the Federal Reserve’s (Fed) future policy decisions and determine the near-term trajectory for the non-yielding Gold price. In the meantime, growing acceptance that the US central bank will start cutting interest rates as early as March 2024 drags the US Treasury bond yields to a fresh multi-month low. This is seen weighing on the USD and lending some support to the precious metal.
Daily Digest Market Movers: Gold price remains supported by March Fed rate cut bets
- Rising bets that the Federal Reserve will eventually pivot away from its hawkish stance early next year turn out to be a key factor acting as a tailwind for the Gold price.
- Dovish Fed expectations drag the yield on the benchmark 10-year US government bond to its lowest level since July and keep the US Dollar bulls on the defensive.
- A slew of Fed officials recently tried to push back on the idea of rapid interest rate cuts next year, albeit did little to provide any meaningful impetus to the buck.
- The Conference Board’s US Consumer Confidence Index jumped to a five-month high level of 110.7 in December from 101, rising the most since early 2021.
- US existing home sales unexpectedly rose by 0.8% in November, to a seasonally adjusted annual rate of 3.82 million units, snapping five straight months of decline.
- The overnight dramatic turnaround in the US equity markets is seen as another factor that benefits the safe-haven precious metal and remains supportive of the uptick.
- Traders now look forward to the final US GDP print, which is expected to show that the world’s largest economy grew by a 5.2% annualized pace during the third quarter.
- Thursday’s US economic docket also features the release of Weekly Initial Jobless Claims data and the Philly Fed Manufacturing Index later during the US session.
- The focus, meanwhile, remains on the Core PCE Price Index, due on Friday, which will influence the Fed’s future rate decisions and infuse volatility in the markets.
Technical Analysis: Gold price remains confined in over a one-week-old trading range
From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle pattern on short-term charts. This marks a consolidation phase before the next leg of a directional move. Against the backdrop of last week’s post-FOMC rally from the vicinity of the 50-day Simple Moving Average (SMA) and the occurrence of a golden cross, with the 50-day SMA holding above the 200-day SMA, support prospects for an eventual break higher. The constructive setup is reinforced by the fact that oscillators on the daily chart are holding 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.
That said, it will still be prudent to wait for a sustained breakout through the $2,047-2,048 region, or the top boundary of the aforementioned trading band, before positioning for any further gains. The XAU/USD might then accelerate the positive move towards the next relevant resistance near the $2,072-2,073. The momentum could get extended further and allow the Gold price to reclaim the $2,100 round figure.
On the flip side, the $2,028 region is likely to protect the immediate downside ahead of the trading range support, near the $2,017 zone. A convincing break below the latter might shift the short-term bias in favour of bearish traders. The subsequent decline could then drag the Gold price to the $2,000 psychological mark. This is closely followed by the 50-day SMA, near the $1,992-1,991 zone, below which the XAU/USD could retest last week’s swing low, around the $1,973 region, and decline further to the 200-day SMA, currently near the $1,957 area.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.49% | 0.29% | -0.16% | -0.76% | 0.44% | -0.67% | -0.99% | |
| EUR | 0.49% | 0.78% | 0.35% | -0.26% | 0.94% | -0.18% | -0.50% | |
| GBP | -0.29% | -0.78% | -0.45% | -1.05% | 0.14% | -0.96% | -1.28% | |
| CAD | 0.17% | -0.33% | 0.44% | -0.60% | 0.58% | -0.51% | -0.84% | |
| AUD | 0.75% | 0.26% | 1.04% | 0.60% | 1.17% | 0.09% | -0.22% | |
| JPY | -0.46% | -0.93% | -0.16% | -0.58% | -1.22% | -1.13% | -1.42% | |
| NZD | 0.65% | 0.18% | 0.95% | 0.49% | -0.08% | 1.09% | -0.33% | |
| CHF | 0.98% | 0.49% | 1.27% | 0.83% | 0.22% | 1.40% | 0.32% |
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).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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