Gold holds steady just below weekly high touched on Tuesday amid weaker USD
- Gold price trades with a positive bias for the third successive day amid dovish Fed expectations.
- The USD languishes near its lowest level since September 1 and continues to lend some support.
- The prevalent risk-on mood might hold back bulls from placing fresh bets and cap further gains.
Gold price (XAU/USD) attracts some buying for the third straight day on Wednesday and sticks to its modest gains through the Asian session. The precious metal currently trades around the $1,967-1,968 area, just below the weekly high touched on Tuesday, and remains supported by a weaker US Dollar (USD), weighed down by growing acceptance that the Federal Reserve (Fed) is done raising interest rates.
That said, the upbeat market mood, bolstered by dovish Fed expectations and a massive liquidity injection by China’s central bank, might cap gains for the safe-haven Gold price. Apart from this, signs that tensions in the Middle East could be easing warrant caution before positioning for an extension of this week’s gooodish rebound from the lowest level since October 18, around the $1,930 area touched on Monday.
Daily Digest Market Movers: Gold price climbs closer to weekly top touched in reaction to softer US CPI
- The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline CPI was unchanged in October, while the yearly rate registered its smallest rise in two years and decelerated to 3.2% from 3.7% in September.
- The data reaffirms expectations that the Federal Reserve (Fed) has ended its policy tightening cycle and lifts bets for a rate cut in May 2024, which, in turn, triggered the overnight steep decline in the US Treasury bond yields.
- The yield on the benchmark 10-year US government bond languishes near a two-month low, keeping the US Dollar depressed near its lowest level since September 1 and lending some support to the non-yielding Gold price.
- The prevalent risk-on mood is seen acting as a headwind for the safe-haven precious metal, though the fundamental backdrop favours bullish traders and suggests that the path of least resistance remains to the upside.
- A 600 billion Yuan liquidity injection by the People’s Bank of China, aimed at shoring up sluggish economic growth and encouraging more lending in the country, further boosts investors’ appetite.
- China’s Industrial Production grew by 4.6% YoY in October, better than the 4.5% rise in the previous month and consensus estimates, and the monthly Retail Sales advanced more than expected, by 7.4% over the past 12 months.
- China’s Fixed Asset Investment climbed by 2.9% YoY during the reported month as compared to the 3.1% anticipated and September reading. The data does little to influence the market sentiment or provide any impetus.
- Market participants now look to the release of the US Producer Price Index (PPI) and monthly Retail Sales figures for short-term opportunities later during the early North American session this Wednesday.
- The headline US PPI is anticipated to have risen by 0.1% in October, down from 0.5% in the previous month, and the yearly rate is seen falling below the 2.0% mark, though the core PPI is expected to match September’s readings.
- The US Retail Sales possibly contracted by 0.3% in October, down sharply from the 0.7% rise registered in the previous month, while sales excluding automobiles are expected to remain flat MoM.
Technical Analysis: Gold price might confront some resistance near the $1,980 horizontal zone
From a technical perspective, any subsequent move beyond the overnight swing high, around the $1,970-1,971 area, is likely to confront some resistance near the $1,980 region. Some follow-through buying has the potential to lift the Gold price towards the $1,991-1,992 hurdle en route to the $2,000 psychological mark and a multi-month peak, around the $2,009-2,010 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.
On the flip side, a corrective pullback might now attract some buyers and remain limited near the $1,950-1,949 area. This is followed by a cluster of supports near the 200-day SMA, currently pegged around the $1,935 region, and the 100- and the 50-day SMAs confluence near the $1,928-1,925 zone. Failure to defend the said support levels would make the Gold price vulnerable to accelerate the fall towards the $1,900 round figure.
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 Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.76% | -2.14% | -0.80% | -2.10% | -0.59% | -2.06% | -1.48% | |
| EUR | 1.72% | -0.38% | 0.94% | -0.33% | 1.14% | -0.30% | 0.27% | |
| GBP | 2.09% | 0.38% | 1.31% | 0.05% | 1.51% | 0.08% | 0.64% | |
| CAD | 0.79% | -0.96% | -1.34% | -1.27% | 0.21% | -1.24% | -0.68% | |
| AUD | 2.05% | 0.32% | -0.06% | 1.26% | 1.45% | 0.02% | 0.58% | |
| JPY | 0.58% | -1.16% | -1.54% | -0.21% | -1.48% | -1.47% | -0.89% | |
| NZD | 2.01% | 0.29% | -0.09% | 1.22% | -0.04% | 1.43% | 0.56% | |
| CHF | 1.46% | -0.27% | -0.65% | 0.66% | -0.61% | 0.87% | -0.57% |
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).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.