Gold clings to gains near two week high as dovish Fed expectations undermine USD
- Gold price continues gaining positive traction in the wake of dovish Fed expectations.
- The markets have started pricing in the possibility of a rate cut in the first half of 2024.
- The XAU/USD remains on track to end on a positive note for the first time in three weeks.
Gold price (XAU/USD) scales higher for the second successive day on Friday – also marking the fourth day of a move up in the previous five – and is currently placed just below a nearly two-week high touched the previous day. Firming expectations for an extended pause by the Federal Reserve (Fed), bolstered by the incoming softer US macro data, turn out to be a key factor acting as a tailwind for the non-yielding yellow metal. Moreover, the markets are starting to look forward to interest rate cuts, perhaps in the first half of 2024, which led to the recent decline in the US Treasury bond yields and is seen undermining the US Dollar (USD).
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, struggles to register any meaningful recovery from its lowest level since September 1 touched in the aftermath of the softer US consumer inflation figures on Tuesday. Apart from this, mixed signals from high-level US-China talks lend additional support to the safe-haven Gold price and support prospects for a further near-term appreciating move. Nevertheless, the XAU/USD remains on track to register weekly gains of nearly 2.5% and snap a two-week losing streak to its lowest level since October 18 touched on Monday.
Daily Digest Market Movers: Gold price remains supported by expectations for an extended Fed pause and rate cut bets
- Gold has now recovered over $50 from a multi-week low, around the $1,932-1,931 area touched on Monday in the wake of bets that the Federal Reserve is done raising interest rates.
- The US CPI report released earlier this week indicated that consumer inflation was cooling faster than anticipated, while the US Jobless Claims on Thursday pointed to a cooling labour market.
- The headline CPI was unchanged in October, while the yearly rate registered its smallest rise in two years and decelerated sharply to 3.2% from 3.7% in September.
- The number of Americans who filed for unemployment insurance for the first time rose to 231K during the week of November 11 from the 218K previous (revised from 217K).
- Furthermore, the recent slump in Oil prices is expected to have a disinflationary effect, which should bring the Fed closer to its 2% target and allow it to soften its hawkish stance.
- A slew of influential Fed officials this week acknowledged the progress to curb inflation, reinforcing the idea that the policy-tightening campaign may soon be over.
- Traders now seem convinced that interest rates in the US will not go higher. Furthermore, the CME Group’s FedWatch Tool indicates the rising possibility of the first rate cut by March 2024.
- The yield on the benchmark 10-year US government bond dropped to a near two-month low on Thursday and continues to undermine the US Dollar, lending support to the Gold price.
- US President Joe Biden and his Chinese counterpart Xi Jinping agreed to reopen military channels, prompting some improvement in relations between the world’s two largest economies.
- Hours after the summit, Biden called Xi a “dictator”, which might have possibly annoyed Chinese authorities.
- Traders now look to the US housing market data and a scheduled speech by Chicago Fed President Austan Goolsbee for short-term opportunities on the last trading day of the week.
Technical Analysis: Gold price could surpass the $2,000 psychological mark and retest the multi-month peak
From a technical perspective, a sustained move and acceptance above the $1,980 level might have already set the stage for further gains. Moreover, oscillators on the daily chart are holding comfortably 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 and supports prospects for a move towards reclaiming the $2,000 psychological mark. The momentum could get extended further towards a multi-month peak, around the $2,009-$2,010 area, which if cleared decisively will be seen as a fresh trigger for bullish traders.
On the flip side, the $1,975 region now seems to protect the immediate downside ahead of the $1,970 level and the $1,962-1,961 support zone. Some follow-through selling, leading to a subsequent break below the $1,955 area, might shift the bias in favour of bearish traders and make the Gold price vulnerable to accelerate the slide back towards the 200-day Simple Moving Average (SMA), currently around the $1,937-1,936 region. This is followed by the 100- and the 50-day SMAs confluence, around the $1,929-1,927 zone, which if broken should pave the way for some meaningful depreciating move in the near term.
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.53% | -1.46% | -0.35% | -1.59% | -0.60% | -1.11% | -1.54% | |
| EUR | 1.51% | 0.08% | 1.16% | -0.06% | 0.92% | 0.42% | -0.01% | |
| GBP | 1.44% | -0.07% | 1.10% | -0.13% | 0.85% | 0.36% | -0.08% | |
| CAD | 0.35% | -1.17% | -1.10% | -1.23% | -0.24% | -0.74% | -1.18% | |
| AUD | 1.57% | 0.06% | 0.12% | 1.21% | 0.97% | 0.48% | 0.05% | |
| JPY | 0.59% | -0.93% | -0.86% | 0.24% | -0.98% | -0.49% | -0.94% | |
| NZD | 1.11% | -0.43% | -0.36% | 0.73% | -0.48% | 0.49% | -0.44% | |
| CHF | 1.52% | 0.01% | 0.08% | 1.17% | -0.05% | 0.92% | 0.44% |
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
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.
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.
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.
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.