- The gold price will regain positive traction on Tuesday, although upside potential appears to be limited.
- China’s geopolitical risks and economic woes provide some support for safe-haven XAU/USD.
- Reduced bets on an early Fed rate cut should limit any meaningful upside movement.
The price of gold (XAU/USD) is pulling back some declines during Tuesday’s Asian session, recovering much of the modest overnight losses. Geopolitical tensions in the Middle East, along with concerns about China’s weak economic recovery, are providing some support for the safe-haven precious metal. However, gains remain limited as investors continue to reduce expectations of more aggressive policy easing by the Federal Reserve (Fed), which could undermine the unyielding yellow metal. In addition, risk-on risk may further contribute to limiting any meaningful appreciation movement in gold ahead of this week’s key central bank risks, particularly the European Central Bank (ECB). Monetary Policy meeting on Thursday.
Traders will also face the global flash PMI release on Wednesday this week, followed by the US Q4 GDP print and the US Core PCE price index on Thursday and Friday. This, in turn, should provide a new directional impulse for the price of gold. Meanwhile, there has been a shift in expectations due to recent hawkish comments by several people Fed officials noting that it was too early to consider interest rate cuts suggests that the path of least resistance for XAU/USD is to the downside. Therefore, any subsequent move up can still be seen as a selling opportunity and is in danger of falling out fairly quickly.
Daily Digest Market Movers: Gold price attracts some safe flows; hawkish expectations of the Fed to cut profits
- The risk of further escalation of conflicts in the Middle East, along with China’s economic problems, is helping the safe-haven gold price regain positive momentum on Tuesday.
- The US has launched a seventh round of attacks on a Houthi anti-ship missile, while drone attacks by Iran-backed Houthi rebels on commercial vessels continue in the Red Sea.
- Pakistan and Iran have decided to solve their problems through diplomacy, while the conflict between Israel and Hamas threatens to erupt into a full-scale war and affect the global economy.
- Investors continue to moderate their expectations for more aggressive policy easing by the Federal Reserve amid signs that the economy is still in good shape.
- Current market prices suggest a 40% chance of a March rate cut, up from an 80% cut a week ago, and five 25bp rate cuts for 2024, up from six two weeks ago.
- The benchmark 10-year US Treasury yield is holding just below its highest level since December last week, acting as a tailwind for the US dollar and capping XAU/USD.
- The Bank of Japan, as widely expected, decided to maintain the status quo at the end of its January meeting this Tuesday, leaving its ultra-loose monetary policy setting unchanged.
- Traders are now looking for fresh impetus at the European Central Bank (ECB) meeting, which along with global PMIs, Advance US Q4 GDP and the US Core PCE Price Index.
Technical Analysis: Gold price may struggle to break through key resistance at $2,040-$2,042
Technically, any subsequent move above the $2,030 area is likely to face stiff resistance near the $2,040-$2,042 offer zone. The latter should act as a key pivot point that, if decisively cleared, could trigger a short-covering rally. The price of gold could then climb to the $2,077 area before trying to regain the $2,100 mark.
On the other hand, the overnight swing around the $2,017-2,016 region now appears to be protecting the immediate downside from the psychological $2,000 level or above the monthly low reached last week. A permanent break below the latter could cause Gold price prone to accelerate the fall towards the intermediate support of $1,988. The downward trajectory could further extend towards the 100-day simple moving average (SMA), currently around the $1,972 area, and the 200-day SMA, near the $1,964-1,963 zone.
Today’s price in US dollars
The table below shows today’s percentage change in the US dollar (USD) against the major currencies listed. The US dollar was strongest against the Japanese yen.
| American dollar | euros | GBP | CAD | AUD | JPY | NZD | CHF | |
| American dollar | -0.19% | -0.16% | -0.11% | -0.36% | -0.07% | -0.34% | -0.27% | |
| euros | 0.17% | 0.00% | 0.05% | -0.20% | 0.09% | -0.17% | -0.11% | |
| GBP | 0.16% | -0.01% | 0.05% | -0.20% | 0.03% | -0.17% | -0.11% | |
| CAD | 0.11% | -0.05% | -0.05% | -0.24% | 0.03% | -0.23% | -0.16% | |
| AUD | 0.35% | 0.17% | 0.19% | 0.23% | 0.28% | 0.02% | 0.09% | |
| JPY | 0.10% | -0.07% | -0.06% | 0.00% | -0.22% | -0.20% | -0.16% | |
| NZD | 0.33% | 0.16% | 0.17% | 0.22% | -0.03% | 0.20% | 0.05% | |
| CHF | 0.26% | 0.10% | 0.11% | 0.16% | -0.08% | 0.15% | -0.06% |
The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).
Frequently asked questions about gold
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, the precious metal, apart from its luster and use for jewelry, is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it does not rely on any particular issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold to their reserves in 2022, worth around $70 billion, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US Treasuries, which are major reserves and safe-haven assets. When the dollar weakens, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets. Stock market rallies tend to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.
The price can fluctuate due to a wide variety of factors. Geopolitical instability or fears of a deep recession can quickly escalate the price of gold due to its safe-haven status. As a lower-yielding asset, gold tends to rise with lower interest rates, while the higher cost of money typically weighs on the yellow metal. Still, most moves depend on how the US dollar (USD) behaves when the asset is priced in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices up.
