Gold rises to fresh two-week top on sustained USD selling, focus remains on FOMC minutes
- Gold price gains strong positive traction on Tuesday and climbs to over a two-week high.
- Dovish Fed expectations continue to weigh on the USD and remain supportive of the move.
- Investors look to the FOMC minutes for cues about future policy action and a fresh impetus.
Gold price (XAU/USD) catches aggressive bids on Tuesday and climbs to over a two-week high, around the $1,994 area heading into the European session. The US Dollar (USD) prolongs its sharp downfall from the vicinity of the YTD top retested earlier this month and touches a nearly three-month trough in the wake of speculations that the Federal Reserve (Fed) could start cutting rates as soon as March 2024. The dovish outlook is reinforced by a further decline in the US Treasury bond yields and turns out to be a key factor driving flows towards the non-yielding yellow metal.
Meanwhile, China’s promise of additional government stimulus measures remains supportive of the upbeat mood around the equity markets. The positive risk tone, which tends to undermine demand for the traditional safe-haven Gold price, however, does little to hinder the strong intraday positive move. This suggests that the path of least resistance for the XAU/USD is to the upside. Bulls, however, might refrain from placing aggressive bets ahead of the FOMC meeting minutes amid the uncertainty over the timing of when the Fed will begin easing its monetary policy.
Daily Digest Market Movers: Gold price continues to draw support from dovish Fed hopes and weaker USD
- The US Dollar selling remains unabated in the wake of dovish Federal Reserve expectations and assisted the Gold price to regain strong positive traction on Tuesday.
- Investors now seem convinced that the Fed has completed its interest rate-hiking cycle and are looking for cues on when the central bank could begin easing its monetary policy.
- The rate-sensitive 2-year US government bond yield remains below the current 5.25-to-5.50% Fed funds target, suggesting that momentum in favour of rate cuts is building.
- The CME’s Fedwatch tool points to a roughly 30% chance that the Fed will start cutting rates as soon as March 2024 and a nearly 100 bps of cumulative easing by the year-end.
- The benchmark US 10-year Treasury yield drops to a fresh two-month low and undermines USD, offsetting the upbeat market mood and benefitting the non-yielding yellow metal.
- Investors turned optimistic after Chinese officials vowed to roll out more policy support for the country’s beleaguered real estate sector and drive stronger momentum for growth.
- China’s new finance minister Lan Fo’an said that the country would boost budget spending to support the post-pandemic recovery in the world’s second-largest economy.
- Fed officials, meanwhile, have not ruled out the possibility that more interest rate hikes could be needed should a change in economic data require it.
- Richmond Fed President Thomas Barkin said on Monday that inflation is likely to remain stubborn and force the central bank to keep rates higher for longer than investors currently anticipate.
- This, in turn, could act as a headwind for the precious metal as traders look to the FOMC minutes for fresh cues about the Fed’s future policy action and some meaningful impetus.
Technical Analysis: Gold price seems poised to surpass $2,000 psychological mark and retest multi-month peak
From a technical perspective, some follow-through buying beyond last week’s swing high, around the $1,993 area, should allow the Gold price to reclaim the $2,000 psychological mark. The momentum could get extended further towards retesting a multi-month peak, around the $2,009-2,010 area touched in October. A sustained strength beyond the latter will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent goodish rebound from levels just below the 200-day Simple Moving Average (SMA).
On the flip side, the $1,978-1,977 region now seems to protect the immediate downside ahead of the overnight swing low, around the $1,965 zone. Failure to defend the said support levels could make the Gold price vulnerable to accelerate the slide back towards challenging the 200-day SMA, currently near the $1,938-1,937 zone. This is followed by the 100- and the 50-day SMAs confluence, around the $1,930-1,929 area, which if broken decisively will shift the near-term bias in favour of bearish traders and prompt some technical selling.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.49% | -0.65% | -0.09% | -1.06% | -1.69% | -1.27% | -0.30% | |
| EUR | 0.49% | -0.16% | 0.40% | -0.56% | -1.18% | -0.77% | 0.19% | |
| GBP | 0.65% | 0.16% | 0.57% | -0.40% | -0.98% | -0.60% | 0.35% | |
| CAD | 0.09% | -0.40% | -0.57% | -0.97% | -1.59% | -1.17% | -0.21% | |
| AUD | 1.04% | 0.56% | 0.41% | 0.96% | -0.62% | -0.21% | 0.75% | |
| JPY | 1.66% | 1.13% | 0.78% | 1.52% | 0.57% | 0.37% | 1.36% | |
| NZD | 1.25% | 0.77% | 0.61% | 1.17% | 0.20% | -0.41% | 0.95% | |
| CHF | 0.31% | -0.19% | -0.35% | 0.21% | -0.75% | -1.38% | -0.96% |
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.