Gold lacks firm intraday direction, remains on track for its worst week in over a month
- Gold price is seen consolidating in a range during the Asian session on Friday.
- Reviving bets for one more Fed rate hike underpin the USD and cap the metal’s upside.
- Receding safe-haven demand might contribute to keeping a lid on the non-yielding asset while China’s economic woes may mitigate its losses.
Gold price (XAU/USD) posted modest recovery gains on Thursday and snapped a three-day losing streak to its lowest level since October 18, around the $1,944 area, though lacks any follow-through buying. The precious metal trades just above the $1.955 level heading into the European session and seems poised to register its worst week in more than a month in the wake of the recent US Dollar (USD) recovery from its lowest level since September 20 touched on Monday.
A flurry of influential FOMC members this week, along with Federal Reserve (Fed) Chair Jerome Powell on Thursday, struck a more hawkish tone and reiterated the need for higher interest rates to combat stubbornly high inflation. This allows the yield on the benchmark 10-year US government bond to move away from its lowest in more than a month touched the previous day and continues to underpin the USD, which, in turn, acts as a headwind for the non-yielding Gold price.
Apart from this, receding safe-haven demand, amid easing concerns over the Israel-Hamas conflict, turns out to be another factor undermining the XAU/USD. That said, worries about the worsening economic conditions in China could help limit the downside for the Gold price. Moving ahead, the release of the Michigan US Consumer Sentiment Index might influence the USD price dynamics later during the North American session and produce short-term trading opportunities.
Daily Digest Market Movers: Gold price is undermined by the recent hawkish remarks by Fed officials
- Gold price posted modest recovery gains on Thursday and snapped a three-day losing streak to its lowest level since October 18, though it is lacking any follow-through buying.
- Federal Reserve officials, including Chair Jerome Powell, backed the case for further policy tightening to rein in inflation and cap gains for the non-yielding yellow metal.
- Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin noted that the current monetary policy stance is likely sufficiently restrictive.
- Philadelphia Fed president Patrick Harker said on Thursday that interest rates should stay higher for longer and that the fight against inflation is still not over yet.
- St. Louis Fed interim President Kathleen O’Neill Paese said that it was too soon to rule out further interest rate hikes and declare a victory on inflation.
- Powell said that policymakers are not yet confident that rates are high enough to bring inflation to the 2% target and that the Fed will not hesitate to raise rates again.
- The White House announced on Thursday that Israel will implement four-hour pauses in Gaza operations each day to allow people to flee hostilities from two humanitarian corridors.
- China’s economic woes continue to haunt market sentiment and should lend support to the safe-haven precious metal as traders look to the US Consumer Sentiment Index.
Technical Analysis: Gold price is more likely to attract fresh sellers and remain capped near the $1,970 level
From a technical perspective, any subsequent move is likely to confront resistance near the $1,970 level, which if cleared might trigger a short-covering rally. The Gold price might then aim to surpass an intermediate hurdle near the $1,980 region and test the $1,990-$1,992 supply zone. This is followed by the $2,000 psychological mark, above which the XAU/USD could climb back to a multi-month top, around the $2,009-2,010 area touched in October.
On the flip side, the overnight swing low, around the $1,944 area, now seems to protect the immediate downside ahead of the very important 200-day Simple Moving Average (SMA), currently pegged around the $1,935-1,934 region. This is followed by the 100-day SMA, near the $1,927-1,926 area. Some follow-through selling will suggest that the Gold price has topped out in the near term and shift the bias in favour of bearish traders.
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 weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.56% | 1.23% | 1.01% | 2.40% | 1.20% | 1.71% | 0.47% | |
| EUR | -0.56% | 0.69% | 0.46% | 1.85% | 0.64% | 1.16% | -0.09% | |
| GBP | -1.25% | -0.69% | -0.23% | 1.17% | -0.05% | 0.47% | -0.78% | |
| CAD | -1.03% | -0.46% | 0.23% | 1.39% | 0.18% | 0.68% | -0.55% | |
| AUD | -2.46% | -1.88% | -1.19% | -1.42% | -1.23% | -0.71% | -1.98% | |
| JPY | -1.21% | -0.64% | -0.18% | -0.17% | 1.23% | 0.50% | -0.73% | |
| NZD | -1.72% | -1.15% | -0.45% | -0.68% | 0.72% | -0.51% | -1.24% | |
| CHF | -0.48% | 0.09% | 0.77% | 0.54% | 1.94% | 0.73% | 1.24% |
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.