Gold sticks to modest intraday gains amid softer risk tone, Fed rate cut bets
- Gold price catches fresh bids on Thursday and reverses a major part of the overnight losses.
- Dovish Fed expectations keep the USD bulls on the defensive and lend support to the metal.
- A softer risk tone further benefits the safe-haven XAU/USD ahead of the US macro releases.
Gold price (XAU/USD) attracts some dip-buying on Thursday and reverses a major part of the previous day’s decline from the vicinity of the weekly top. The US Dollar (USD) struggles to capitalize on the overnight positive move and edges lower amid bets that the Federal Reserve (Fed) will start cutting interest rates as early as March 2024. This is reinforced by the recent slump in the US Treasury bond yields to a multi-month low and keeps the USD depressed, lending some support to the precious metal.
Apart from this, a generally softer tone around the equity markets is seen as another factor benefitting the safe-haven Gold price. The commodity, however, remains confined in over a one-week-old trading range as traders keenly await the release of the US Core Personal Consumption Expenditure (PCE) Price Index – the Fed’s preferred inflation gauge – before placing directional bets. The data should influence the Fed’s future policy decisions and determine the near-term trajectory for the XAU/USD.
In the meantime, traders on Thursday will take cues from the final US Q3 GDP print, which, along with the usual Weekly Jobless Claims and the Philly Fed Manufacturing Index, will drive the USD demand. Apart from this, the US bond yields and the broader risk sentiment should contribute to producing short-term trading opportunities around the Gold price. Nevertheless, the fundamental backdrop seems tilted in favour of bulls and supports prospects for a further appreciating move for the commodity.
Daily Digest Market Movers: Gold price benefits from reviving safe-haven demand and softer USD
- Rising bets that the Federal Reserve will eventually pivot away from its hawkish stance early next year turn out to be a key factor acting as a tailwind for the Gold price.
- Dovish Fed expectations drag the yield on the benchmark 10-year US government bond to its lowest level since July and keep the US Dollar bulls on the defensive.
- A slew of Fed officials recently tried to push back on the idea of rapid interest rate cuts next year, albeit did little to provide any meaningful impetus to the buck.
- The Conference Board’s US Consumer Confidence Index jumped to a five-month high level of 110.7 in December from 101, rising the most since early 2021.
- US existing home sales unexpectedly rose by 0.8% in November, to a seasonally adjusted annual rate of 3.82 million units, snapping five straight months of decline.
- The overnight dramatic turnaround in the US equity markets is seen as another factor that benefits the safe-haven precious metal and remains supportive of the uptick.
- Traders now look forward to the final US GDP print, which is expected to show that the world’s largest economy grew by a 5.2% annualized pace during the third quarter.
- Thursday’s US economic docket also features the release of Weekly Initial Jobless Claims data and the Philly Fed Manufacturing Index later during the US session.
- The focus, meanwhile, remains on the Core PCE Price Index, due on Friday, which will influence the Fed’s future rate decisions and infuse volatility in the markets.
Technical Analysis: Gold price seems poised to breakout through over a one-week-old trading range
From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle pattern on short-term charts. This marks a consolidation phase before the next leg of a directional move. Against the backdrop of last week’s post-FOMC rally from the vicinity of the 50-day Simple Moving Average (SMA) and the occurrence of a golden cross, with the 50-day SMA holding above the 200-day SMA, support prospects for an eventual break higher. The constructive setup is reinforced by the fact that oscillators on the daily chart are holding 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 upside.
That said, it will still be prudent to wait for a sustained breakout through the $2,047-2,048 region, or the top boundary of the aforementioned trading band, before positioning for any further gains. The XAU/USD might then accelerate the positive move towards the next relevant resistance near the $2,072-2,073. The momentum could get extended further and allow the Gold price to reclaim the $2,100 round figure.
On the flip side, the $2,028 region is likely to protect the immediate downside ahead of the trading range support, near the $2,017 zone. A convincing break below the latter might shift the short-term bias in favour of bearish traders. The subsequent decline could then drag the Gold price to the $2,000 psychological mark. This is closely followed by the 50-day SMA, near the $1,992-1,991 zone, below which the XAU/USD could retest last week’s swing low, around the $1,973 region, and decline further to the 200-day SMA, currently near the $1,957 area.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.49% | 0.29% | -0.16% | -0.76% | 0.44% | -0.67% | -0.99% | |
| EUR | 0.49% | 0.78% | 0.35% | -0.26% | 0.94% | -0.18% | -0.50% | |
| GBP | -0.29% | -0.78% | -0.45% | -1.05% | 0.14% | -0.96% | -1.28% | |
| CAD | 0.17% | -0.33% | 0.44% | -0.60% | 0.58% | -0.51% | -0.84% | |
| AUD | 0.75% | 0.26% | 1.04% | 0.60% | 1.17% | 0.09% | -0.22% | |
| JPY | -0.46% | -0.93% | -0.16% | -0.58% | -1.22% | -1.13% | -1.42% | |
| NZD | 0.65% | 0.18% | 0.95% | 0.49% | -0.08% | 1.09% | -0.33% | |
| CHF | 0.98% | 0.49% | 1.27% | 0.83% | 0.22% | 1.40% | 0.32% |
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).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.