Gold sticks to modest intraday gains amid softer US Dollar, lacks bullish conviction
- Gold price attracts some dip-buying on Monday amid a modest US Dollar downtick.
- Geopolitical tensions and looming recession risks also benefit the safe-haven metal.
- The prevalent risk-on environment could act as a headwind and cap any further gains.
Gold price (XAU/USD) kicks off the new week on a positive note and sticks to its modest intraday gains heading into the European session, albeit lacking bullish conviction. Top Federal Reserve (Fed) officials tried to temper speculation about early interest rate cuts on Friday. Adding to this, the robust risk-on sentiment pervading across the global equity markets contributes to capping the upside for the safe-haven precious metal. Furthermore, traders opt to wait on the sidelines ahead of the release of the US Core PCE Price Index – the Fed’s preferred inflation gauge on Friday.
The US central bank last week signalled an end to its monetary policy tightening cycle and the so-called “dot plot” pencilled in at least three 25 basis points (bps) rate cuts in 2024. Hence, the key US inflation reading will influence market expectations about the timing when the Fed will begin easing its policy, which, in turn, will provide some meaningful impetus to the non-yielding Gold price. In the meantime, bets that the Fed will start cutting rates in March keep a lid on the US Dollar (USD) from over a four-month low touched last Friday and act as a tailwind for the commodity.
Apart from this, geopolitical risks and worries about a deeper economic downturn, particularly in China and the Eurozone, turn out to be another factor lending some support to the safe-haven Gold price. Meanwhile, the fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for the XAU/USD is to the upside. Hence, any meaningful corrective decline could be seen as a buying opportunity and is more likely to remain cushioned in the absence of any relevant market-moving economic releases from the US on Monday.
Daily Digest Market Movers: Gold price draws support from softer US Dollar, Fed’s dovish shift
- New York Federal Reserve President John Williams, in an interview with CNBC, said on Friday that we aren’t really talking about rate cuts right now and it’s premature to speculate about them.
- William added that the economic data can move in surprising ways and the central bank needs to be ready to tighten policy further if the progress on inflation were to stall or reverse.
- Separately, Atlanta Fed President Raphael Bostic echoed the view, saying that rate cuts were not an imminent thing and that the first cuts could come sometime in the third quarter of 2024.
- The markets, however, seem convinced that the Fed will ease its policy by the first half of 2024, which caps the US Dollar bounce from over a four-month low and lends support to the Gold price.
- The flash PMI prints released on Friday showed that business activity in Germany deteriorated during December, increasing the risk of a recession in the Eurozone’s largest economy.
- North Korea fired at least one unidentified type of ballistic missile on Monday, just hours after a separate launch of a short-range missile late Sunday night.
- China’s state media Xinhua, citing a government readout, reported that the economy is expected to see more favourable conditions and more opportunities than challenges in 2024.
- This, along with the Fed’s dovish pivot, remains supportive of the underlying bullish sentiment across the global equity markets and might keep a lid on the safe-haven precious metal.
Technical Analysis: Gold price remains below $2,050 area, or over a one-week high touched last Thursday
From a technical perspective, any subsequent move up is likely to confront stiff resistance near the $2,040 supply zone, above which the Gold price could aim to retest last week’s swing high, around the $2,049-2,050 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for a move towards the next relevant barrier near the $2,072-2,073 area. The momentum could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.
On the flip side, the $2,015-2,010 horizontal resistance breakpoint might continue to protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable to challenge the 50-day SMA support, currently pegged near the $1,982-1,981 region. This is followed by last week’s swing low, around the $1,973 area, and the 200-day SMA, near the $1,956-1,955 zone, which if broken decisively will shift the near-term bias in favour of bearish traders.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.19% | -0.02% | -0.28% | -0.14% | -0.50% | -0.14% | |
| EUR | 0.15% | -0.03% | 0.13% | -0.13% | 0.02% | -0.34% | 0.02% | |
| GBP | 0.18% | 0.03% | 0.17% | -0.09% | 0.05% | -0.31% | 0.05% | |
| CAD | 0.02% | -0.14% | -0.17% | -0.26% | -0.12% | -0.48% | -0.12% | |
| AUD | 0.27% | 0.13% | 0.11% | 0.27% | 0.16% | -0.21% | 0.16% | |
| JPY | 0.13% | -0.02% | -0.05% | 0.12% | -0.15% | -0.37% | -0.01% | |
| NZD | 0.50% | 0.34% | 0.31% | 0.47% | 0.21% | 0.36% | 0.36% | |
| CHF | 0.14% | -0.01% | -0.04% | 0.12% | -0.14% | 0.00% | -0.36% |
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.