Home Forex Gold remains confined within a familiar range, with a softer USD providing some support

Gold remains confined within a familiar range, with a softer USD providing some support

by SuperiorInvest


  • The gold price is struggling to attract buyers amid hawkish Fed expectations and upbeat market sentiment.
  • Uncertainty about a Fed rate cut is keeping USD bulls on the defensive and adding support to the metal.
  • Traders are eagerly awaiting US consumer inflation data on Tuesday before placing bets.

The price of gold (XAU/USD) is struggling to gain some meaningful traction during Monday's early European session, although it is managing to hold above last week's lows. Investors are tempering their expectations of an early and sharp interest rate cut by the Federal Reserve (Fed) amid a still resilient US economy. This continues to support elevated US Treasury yields, which, along with the underlying bullish tone in equity markets, continue to act as a headwind for safe-haven precious metals.

That said, uncertainty about the Fed's rate-cutting path isn't helping matters American dollar (USD) in attracting any meaningful buying and helping to limit the decline in the price of gold. Traders also appear reluctant to make aggressive bets, preferring to wait for US consumer inflation data due on Tuesday. This, in turn, makes it prudent to wait for a sustained breakout in the broader trading range held since the start of this year before traders start placing positions for the next part of the directional move for XAU/USD.

Daily Digest Market Movers: Gold traders await clarity on Fed rate cut path before placing directional bets

  • Growing consensus that the Federal Reserve will keep interest rates higher for longer on the back of an increasingly resilient US economy is acting as a headwind to the bearish price of gold.
  • In addition, recent hawkish remarks by a number of influential FOMC members have forced investors to scale back their expectations for an early and sharp rate cut this year.
  • Dallas Fed President Lorie Logan said on Friday there was no urgency to cut rates and that she wanted more evidence on inflation to confirm progress was sustainable.
  • Atlanta Fed President Raphael Bostic noted that inflation has been too high for too long and that there is still a way to go and that the US is on track to return to pre-pandemic economic activity.
  • Annual revisions released by the Labor Department on Friday showed that US consumer prices rose slightly more than previously reported in October and November.
  • However, the US dollar is struggling to gain any meaningful strength amid uncertainty over the likely timing and pace of Fed rate cuts this year.
  • Traders also prefer to wait on the sidelines and look to the latest US consumer inflation data on Tuesday for clues on the Fed's rate-cutting path before placing bets.
  • Relatively light trading volumes on the back of holidays in Japan and China further contribute to muted spread-bound price action on the first day of the new week.
  • Israel's military said on Monday it had concluded a series of strikes in southern Gaza, easing fears of the Israeli-Palestinian conflict spreading to the Middle East.

Technical Analysis: The price of gold remains confined within a familiar trading range and is in no rush

Technically, last week's low around the $2,015 area is likely to protect the immediate downside from the $2,000 psychological barrier. Since the oscillators on the daily diagram started to gain negative momentum again, a convincing break below the latter will be seen as a new trigger for bearish traders and set the stage for deeper losses. The price of gold could then accelerate the decline towards the 100-day simple moving average (SMA), currently around the $1,988 zone, before dropping to the all-important 200-day SMA near the $1,966-1,965 region.

On the downside, the 50-day SMA, around the $2,033 area, could act as an immediate barrier before last week's high near the $2,044-2,045 area. This is followed by the $2,065 region, or the monthly high, which, if decisively cleared, will negate the short-term negative outlook. The gold price could then accelerate a positive move towards a retest of the YTD high near the $2,078-$2,079 touched in January. A subsequent move up has the potential to lift XAU/USD to the $2,100 mark on the way to the next relevant hurdle near the $2,120 region.

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 New Zealand dollar.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar 0.05% 0.05% 0.02% 0.05% 0.05% 0.29% 0.03%
euros -0.05% 0.01% -0.02% 0.04% 0.00% 0.24% -0.01%
GBP -0.05% 0.00% -0.02% 0.01% 0.00% 0.24% -0.01%
CAD -0.02% 0.02% 0.03% 0.03% 0.03% 0.26% 0.01%
AUD -0.06% -0.01% -0.01% -0.04% -0.01% 0.23% -0.03%
JPY -0.05% -0.01% 0.04% -0.03% 0.01% 0.23% -0.02%
NZD -0.29% -0.24% -0.23% -0.26% -0.23% -0.23% -0.25%
CHF -0.05% -0.01% 0.01% -0.03% 0.00% 0.00% 0.24%

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).

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 take during a reference period. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risky” market, investors start to “play it safe” because they are worried about the future, so they buy less risky assets that are more certain to produce a return, even if it is relatively modest.

Typically, during “risk-on” periods, stock markets will rise, most commodities – except gold – will also gain in value as they benefit from a positive growth outlook. Currencies of countries that are heavy commodity exporters are strengthening due to increased demand and cryptocurrencies are rising. In the “risk on” market, bonds go up – especially large government bonds – gold shines, and safe havens like the Japanese yen, Swiss franc and US dollar all benefit.

The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD) and smaller FX like the Ruble (RUB) and South African Rand (ZAR) all tend to rise in “risk on” markets. This is because that the economies of these currencies are heavily dependent on commodity exports for growth and commodities tend to rise in price during periods of risk This is because investors anticipate greater demand for raw materials in the future due to increased economic activity.

The main currencies that tend to rise during “risk-off” periods 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 considered safe because the world's largest economy is unlikely to default. Only from the increased demand for Japanese government bonds, since a high share is held by domestic investors who are unlikely to issue them – even in times of crisis. Swiss franc, as strict Swiss banking laws offer investors increased capital protection.

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