Gold price is flat following the release of January’s FOMC minutes
- Gold remains stable within the $2020-30 range following the Fed’s latest monetary policy insights.
- US Treasury yields and the Dollar show minimal reaction to Fed’s commitment to inflation targets.
- Market anticipates potential rate adjustments in June, after the release of the latest FOMC meeting minutes.
Gold price is virtually unchanged after the US Federal Reserve (Fed) released January’s meeting minutes, which reassured market participants that the Fed is in no rush to cut rates in the near term. Even though that could be seen as “hawkish,” US Treasury bond yields remained within familiar levels at the release, while the Greenback (USD) edged down by 0.04%. The XAU/USD trades within the $2020-30 range, at the time of writing.
The Federal Open Market Committee (FOMC) minutes showed Fed officials remain hesitant to cut rates too soon, while adding they did not see it appropriate to lower interest rates until they gained “greater confidence” in inflation moving sustainably towards 2%. Even though policymakers acknowledged that the risks of achieving both mandates is more balanced, they remained “highly attentive” to inflationary risks, even though economic risks are skewed to the downside.
On the release, the US 10-year Treasury note yield is up three and a half basis points at 4.315%. At the same time, the US Dollar Index (DXY), which tracks the performance of the Greenback versus the other six currencies, dropped 0.04% to 104.01. Following the release, the Fed funds futures contracts continued to price in Jun as the first Fed rate cut.
Daily digest market movers: Gold retraces as traders expect less dovish Fed
- The CME FedWatch Tool sees traders expect the first 25 bps rate cut by the Fed in June 2024.
- Investors are pricing in 95 basis points of easing throughout 2024.
- The US Dollar Index, tracking the performance of the US Dollar against a basket of six major currencies, is currently trading within a narrow range around 104.10, up 0.03%.
- The latest inflation reports from the US triggered a change of language from Fed officials, who struck a “cautious” tone. Atlanta Fed President Raphael Bostic suggested the Fed is in no rush to ease policy.
- Richmond Fed President Thomas Barkin said the latest inflation reports were “less good,” adding that the US has “a ways to go” to achieve a soft landing.
- San Francisco Fed President Mary Daly stated, “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
- This week the US economic schedule will feature the release of the latest Federal Reserve Open Market Committee (FOMC) Minutes alongside Fed officials’ speeches beginning on Wednesday.
- Traders will get further cues from US S&P Global PMIs, Initial Jobless Claims data and the Chicago Fed National Activity Index, usually a prelude to the Institute for Supply Management’s (ISM) Manufacturing PMI.
Technical analysis: Gold stays above 100-day SMA, eyes key resistance near 50-day SMA
Gold is trading range-bound though tilted to the downside as the yellow metal has achieved a successive series of lower highs and lows. Stir resistance at the 50-day Simple Moving Average (SMA) at $2,033.54 might cap XAU/USD’s upside, but if cleared, that would pave the way to test the $2,050.00 figure. Upside risks lie at $2,065.60, the February 1 high.
On the flip side, if sellers step in and push prices below the $2,000 figure, that will expose the 100-day SMA at $2,002.05. The next stop would be the December 13 low at $1,973.13, followed by the 200-day SMA at $1,965.86.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.