Gold consolidates near six-month top, Fed rate cut bets favour bullish traders
- Gold price trades with a positive bias for the fourth straight day, near a multi-month peak.
- Bets that the Fed is done raising rates and start easing its policy in 2024 remain supportive.
- A positive risk tone caps gains as traders look to US data and Fedspeaks for some impetus.
- The focus remains on the US PCE data and the Fed’s preferred inflation gauge on Thursday.
Gold price (XAU/USD) pushed through the $2,008-2,010 horizontal barrier and advanced to the $2,018 region on Monday, or its highest level since mid-May. The precious metal now seems to have entered a bullish consolidation phase and oscillates in a range just below the said area heading into the European session on Tuesday. The softer US consumer inflation figures released two weeks ago fueled speculations for a pause in the Federal Reserve’s (Fed) monetary tightening cycle. Moreover, the markets have been pricing in the possibility of a series of rate cuts in 2024. This, in turn, drags the US Dollar (USD) to a near three-week low and supports prospects for an extension of the commodity’s recent uptrend from sub-$1,950 levels, or the monthly low touched on November 13.
Apart from this, concerns about a global economic downturn, which tends to benefit traditional safe-haven assets, validate the near-term positive outlook for the Gold price. That said, a positive tone around the Asian equity markets acts as a headwind for the precious metal. Bullish traders also seem reluctant to place aggressive bets and prefer to wait for the release of the Personal Consumption Expenditure (PCE) Price Index from the United States (US) for some meaningful impetus. In the meantime, the release of the Conference Board’s Consumer Confidence Index and speeches by influential FOMC members could produce short-term trading opportunities later this Tuesday. Nevertheless, the near-term fundamental backdrop seems tilted firmly in favour of bullish traders.
Daily Digest Market Movers: Gold price continues to draw support from Fed rate cut bets
- Growing acceptance that the Federal Reserve is done raising rates assists the non-yielding Gold price to hold steady above the $2,000 psychological mark.
- Softer US consumer inflation figures released two weeks ago lifted bets that the Fed will hold rates at the current levels and begin easing policy in 2024.
- Data released on Monday showed that sales of new single-family homes in the US fell more than expected in October as higher mortgage rates reduced affordability.
- The benchmark 10-year US Treasury bond yield languishes near a two-month low and drags the US Dollar to a near three-month low, benefitting the XAU/USD.
- Looming recession risks lend additional support to the safe-haven precious metal, though a positive tone around the equity markets caps any further gains.
- Traders now look to the Conference Board’s US Consumer Confidence Index and speeches by Fed officials for some impetus later during the North American session.
- The market focus, meanwhile, will remain glued to the release of the Fed’s preferred inflation gauge – the core PCE Price Index – scheduled on Thursday.
Technical Analysis: Gold price bulls have the upper hand above $2,008-2,010 resistance breakpoint
From a technical perspective, the overnight breakout through the $2,008-2,010 horizontal barrier was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the downside. Hence, a subsequent move up towards testing the next relevant resistance, around the $2,035 region, looks like a distinct possibility. The momentum could get extended further towards the $2,048 intermediate hurdle en route to the YTD peak, around the $2,078 region touched in May.
On the flip side, the $2,010-2,008 resistance breakpoint now seems to protect the immediate downside ahead of the $2,000 mark. Some follow-through selling, leading to a subsequent slide below the $1,988-1,987 region, could pave the way for deeper losses. The Gold price might then accelerate the fall towards the $1,978 zone en route to the $1,967-1,966 area and the $1,955 support zone. A convincing break below the latter will expose the 200-day Simple Moving Average (SMA), currently pegged near the $1,942 region and the $1,935-1,934 confluence – comprising the 100- and the 50-day SMAs.
US Dollar price this month
The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -3.58% | -3.98% | -2.00% | -4.42% | -2.07% | -5.05% | -3.37% | |
| EUR | 3.43% | -0.41% | 1.52% | -0.84% | 1.43% | -1.45% | 0.18% | |
| GBP | 3.83% | 0.39% | 1.92% | -0.44% | 1.85% | -1.05% | 0.59% | |
| CAD | 1.96% | -1.56% | -1.94% | -2.39% | -0.07% | -3.00% | -1.35% | |
| AUD | 4.24% | 0.81% | 0.43% | 2.32% | 2.27% | -0.58% | 1.01% | |
| JPY | 2.02% | -1.48% | -1.89% | 0.08% | -2.32% | -2.97% | -1.25% | |
| NZD | 4.82% | 1.43% | 1.04% | 2.93% | 0.61% | 2.87% | 1.63% | |
| CHF | 3.25% | -0.22% | -0.60% | 1.32% | -1.04% | 1.22% | -1.65% |
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.