- Gold price regains positive traction amid expectations that US interest rates have peaked.
- The recent decline in the US bond yields undermines the US Dollar and remains supportive.
- Looming recession risks and geopolitical tensions further benefit the safe-haven XAU/USD.
Gold price (XAU/USD) attracts some dip-buying near the $1,973 area on the first day of a new week and stalls Friday’s modest pullback from a two-week high. The precious metal currently trades just below the $1,985 level, up nearly 0.20% for the day. It seems poised to build on its recent goodish rebound from the monthly low touched last Monday in the wake of dovish Federal Reserve (Fed) expectations.
Growing acceptance that the Fed will maintain the status quo at its December 2023 meeting and ultimately start cutting interest rates in 2024 could keep the US Dollar (USD) depressed near its lowest level since September 1. Apart from this, the worsening global economic outlook, along with geopolitical risks, turns out to be another factor underpinning the safe-haven Gold price and remains supportive of the upwards move.
However, it remains to be seen if bulls can retain control or prefer to wait on the sidelines ahead of this week’s release of the FOMC meeting minutes on Tuesday. Investors will get a fresh insight into the path of interest rates and policymakers’ views on whether the US Central Bank should raise interest rates again this year. This, in turn, should provide some meaningful impetus to the non-yielding Gold price.
Daily Digest Market Movers: Gold price continues to draw support from a combination of factors
- Gold price continues to draw support from firming expectations that the Federal Reserve (Fed) will not hike interest rates amid signs that the high-prices nightmare has ended.
- The US CPI report last week indicated that consumer inflation was cooling faster than anticipated, while the US Jobless Claims last Thursday pointed to a cooling labour market.
- The markets seem convinced that the Fed will leave rates unchanged at its December 2023 policy meeting and are pricing in nearly 100 bps of rate cuts by the end of 2024.
- A turnaround in expectations for the Fed’s future policy action dragged the benchmark 10-year US Treasury yield to a two-month low on Friday and benefit the non-yielding metal.
- The US Dollar languishes near its lowest level since September and is seen as another factor lending support to the XAU/USD ahead of the FOMC minutes on Tuesday.
- The escalation of violence between Israel and Hamas has sparked concerns about its potential impact on the world economy and, in a worst-case scenario, could push it into recession.
- Israel and the US rejected reports of a potential breakthrough in negotiations with Hamas to free some of the 240 hostages in Gaza in exchange for a five-day pause in the war.
Technical Analysis: Gold price could retest multi-month top once $1,990 barrier is cleared decisively
From a technical perspective, bulls need to wait for sustained strength and acceptance above the $1,990 supply zone before placing fresh bets. The Gold price might then aim to surpass the $2,000 psychological mark and retest a multi-month peak, around the $2,009-2,010 region touched on October 27. On the flip side, the Asian session low, around the $1,973 area, now seems to protect the immediate downside. Some follow-through selling could expose the next relevant support near the $1,963 region, below which the XAU/USD could challenge the 200-day Simple Moving Average (SMA), currently pegged near the $1,938-1,937 zone.
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 Canadian Dollar.
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 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.