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Gold holds losses amid tempered Fed rate cut prospects | FXStreet

Gold (XAU/USD) maintains its offered tone through the Asian session on Friday, though it lacks bearish conviction and remains confined in the weekly range amid mixed cues. Chances of another rate cut by the Federal Reserve (Fed) in December declined further following the delayed release of the September US Nonfarm Payrolls (NFP) report on Thursday. This, in turn, is seen as a key factor undermining demand for the non-yielding yellow metal.

Meanwhile, the US Dollar (USD) pauses its recent move up to the highest level since May amid concerns about the weakening economic momentum on the back of the longest-ever US government shutdown. Apart from this, a generally weaker tone around the equity markets acts as a tailwind for the safe-haven Gold. This, in turn, warrants some caution for the XAU/USD bears and positioning for any meaningful depreciating move in the near term.

Daily Digest Market Movers: Gold bulls seem reluctant as reduced Fed rate cut bets offset modest USD downtick and softer risk tone

  • The US Bureau of Labor Statistics published the closely-watched Nonfarm Payrolls report on Thursday, which showed that the economy added 119,000 new jobs in September. The reading followed the 4,000 decrease (revised from +22,000) recorded in August and surpassed the market expectation of 50,000.
  • Additional details revealed that annual wage inflation, as measured by the change in the Average Hourly Earnings, held steady at 3.8% YoY, compared to the estimates of 3.7%. This helped offset an uptick in the Unemployment Rate from 4.3% to 4.4% and validated less dovish Federal Reserve expectations.
  • This comes on top of less dovish October FOMC minutes on Wednesday, which showed that members remained divided about how to proceed. According to the CME Group’s FedWatch Tool, the probability of another interest rate cut by the US Federal Reserve in December has now dropped to around 35%.
  • This has been a key factor behind the US Dollar’s recent move up to its highest level since late May and continues to act as a headwind for the non-yielding Gold during the Asian session on Friday. However, the fragile global risk sentiment could help limit the downside for the safe-haven precious metal.
  • Traders now look forward to the release of flash US PMIs and the revised University of Michigan Consumer Sentiment Index. Furthermore, speeches by influential FOMC members will be scrutinized for more cues about the rate-cut path should provide a fresh impetus to the USD and the XAU/USD pair.
  • Ukraine’s President Volodymyr Zelenskyy said that he will negotiate with President Donald Trump on the US-backed 28-point peace plan that called on Ukraine to make painful concessions in order to end the Russian invasion. This keeps geopolitical risks in play and could further support the commodity.

Gold needs to decisively break below the $4,020 confluence support to back the case for any meaningful decline

The precious metal is holding above a nearly one-month-old ascending trend-line support, currently pegged near the $4,020 region. The said area now coincides with the 200-period Exponential Moving Average (EMA) and should act as a key pivotal point. A convincing break below could make the Gold price vulnerable to weaken further below the $4,000 psychological mark and accelerate the slide towards the $3,931 support. The downward trajectory could extend further towards retesting the late October swing low, around the $3,886 region.

On the flip side, bulls need to wait for sustained strength and acceptance above the $4,100 mark before placing fresh bets. The subsequent strength could lift the Gold price to the next relevant hurdle near the $4,152-4,155 region, and the momentum could extend further towards reclaiming the $4,200 round-figure mark.

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.