Gold sticks to modest gains amid sustained USD selling, risk-on mood caps gains
- 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.
- Hops for more stimulus from China boost investors’ confidence and cap gains for the metal.
Gold price (XAU/USD) attracts some dip-buying near the $1,973 area on the first day of a new week, albeit lacks follow-through and remains below a two-week high touched on Friday heading into the European session. The risk-on mood around the Asian equity markets is seen as a key factor acting as a headwind for the safe-haven precious metal. Any meaningful corrective slide, meanwhile, seems limited in the wake of dovish Federal Reserve (Fed) expectations.
Growing acceptance that the US central bank will maintain the status quo at its December 2023 policy meeting and ultimately start cutting interest rates in 2024 drags the US Dollar (USD) to its lowest level since August 31. 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 modest intraday upward move.
Bulls, however, seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the FOMC meeting minutes, due for release on Tuesday. Investors will closely scrutinise the minutes to 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, will drive the USD demand in the near term and provide some meaningful impetus to the non-yielding Gold price.
Daily Digest Market Movers: Gold price struggles to capitalize on modest intraday gains amid the risk-on mood
- 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.
- The People’s Bank of China kept its Loan Prime Rate (LPR) near record lows, as widely expected, and also injected about 80 billion Yuan of liquidity into markets.
- Chinese regulators vowed to provide more policy support to the beleaguered real estate sector, boosting investors’ confidence and capping the safe-haven XAU/USD.
Technical Analysis: Gold price seems poised to appreciate further beyond the $2,000 psychological mark
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.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.16% | -0.23% | -0.14% | -0.53% | -0.69% | -0.49% | -0.17% | |
| EUR | 0.16% | -0.08% | 0.02% | -0.36% | -0.52% | -0.32% | -0.01% | |
| GBP | 0.23% | 0.09% | 0.11% | -0.27% | -0.45% | -0.24% | 0.09% | |
| CAD | 0.14% | -0.01% | -0.10% | -0.38% | -0.54% | -0.34% | -0.01% | |
| AUD | 0.51% | 0.37% | 0.28% | 0.38% | -0.18% | 0.03% | 0.35% | |
| JPY | 0.71% | 0.55% | 0.23% | 0.56% | 0.18% | 0.22% | 0.54% | |
| NZD | 0.47% | 0.32% | 0.24% | 0.35% | -0.04% | -0.22% | 0.34% | |
| CHF | 0.17% | 0.01% | -0.07% | 0.03% | -0.36% | -0.52% | -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).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.