Home Forex Gold remains depressed on expectations that the Fed will keep rates higher for longer

Gold remains depressed on expectations that the Fed will keep rates higher for longer

by SuperiorInvest


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  • The gold price will meet new supply on Monday, snapping a two-day winning streak.
  • Reduced bets that the Fed will cut rates in March act as a headwind for XAU/USD.
  • Falling US bond yields, a softer USD and geopolitical risk could limit deeper losses.

The price of gold (XAU/USD) is coming under renewed selling pressure on the first day of the new week, stalling a two-day-old recovery from near the psychological $2,000 level, above the one-month low reached last Wednesday. Positive US macro data released last week pointed to a still resilient economy, giving the Federal Reserve (Fed) room to maintain interest rates higher longer. Added to this were the hawkish comments of a few Fed officials forced investors to continue to trim their expectations for more aggressive policy easing in 2024, which in turn is seen as undermining the intractable yellow metal.

In addition, the generally positive tone around equity markets further contributes to the bullish tone around the gold price during the first half of the European session. This means that further escalation of geopolitical tensions in the Middle East, along with lingering concerns about slowing economic growth in China, could provide some support to the safe-haven XAU/USD. In addition, the slight decline in US government bond yields continues American dollar (USD) bulls on the defensive, which could hold back bearish traders from placing aggressive bets around XAU/USD and help limit deeper losses.

Daily Digest Market Movers: Gold margin narrows as traders limit bets on Fed rate cut in March

  • Reduced bets on an early interest rate cut by the Federal Reserve, along with a generally positive risk tone, are fueling fresh selling around the gold price on the first day of the new week.
  • Better-than-expected US macro data released last week, along with recent comments from Fed officials, are prompting investors to further short their bets on an early interest rate cut.
  • A preliminary survey by the University of Michigan showed the U.S. consumer sentiment index rose from 69.7 in December to 78.8 this month, the highest level since July 2021.
  • According to CME Group’s Fed Watch Tool, traders are now pricing in a less than 50% chance of a Fed rate cut at the March policy meeting, down from more than 70% last week.
  • Chicago Fed President Austan Goolsbee said on Friday that the central bank needs to have more data on inflation before making any decision on whether to cut interest rates.
  • Separately, San Francisco Fed President Mary Daly said there was still a lot of work to be done on inflation and it was premature to think a rate cut was around the corner.
  • The US launched an attack on a Houthi anti-ship missile on Sunday, the seventh round of strikes since the Iran-backed rebel group began targeting merchant vessels in the Red Sea.
  • There have been at least 140 attacks on US bases since October 17 and seven in the past week, including heavy military attacks on the Ain al-Assad base in Iraq that injured US and Iraqi soldiers.
  • Iran has vowed retaliation for a strike that killed five senior military officials in Damascus yesterday, an attack blamed on Israel, which it has neither confirmed nor denied was involved.
  • Israeli forces and Hamas fighters clashed at several locations on Sunday, while Israeli aircraft resumed heavy bombardment of Khan Younis in the southern Gaza Strip.
  • Israeli Prime Minister Benjamin Netanyahu appeared to rule out a two-state solution to the conflict, saying Israel must retain security control over all the territory west of Jordan.
  • The People’s Bank of China (PBoC) decided to keep the one-year and five-year Loan Prime (LPR) rates unchanged at 3.45% and 4.20%, respectively, this Monday.

Technical Analysis: Gold price flirts with $2,020 support, looks vulnerable to further decline

Technically, some retracement below the $2,020 support will reveal the $2,000 psychological barrier, or more than the one-month low reached last week. The latter should act as a key pivot point that, if definitely broken, could cause Gold price vulnerable. The subsequent decline has the potential to drag XAU/USD further towards the $1,988 intermediate support on the way to the 100-day simple moving average (SMA), currently around the $1,972 area, and the 200-day SMA near the $1,964-1,963 region. .

On the other hand, Friday’s swing high, around the $2,040-2,042 bid zone, may continue to act as an immediate strong barrier. Sustained strength beyond could trigger a short covering rally and lift XAU/USD towards the $2,077 area. The upward trajectory could extend further and allow the bulls to reclaim the $2,100 round-number mark.

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 the strongest against the .

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar -0.12% -0.14% 0.02% -0.04% -0.17% -0.11% -0.07%
euros 0.12% -0.01% 0.14% 0.08% -0.05% 0.01% 0.06%
GBP 0.14% 0.01% 0.14% 0.10% -0.03% 0.03% 0.07%
CAD -0.01% -0.12% -0.14% -0.04% -0.17% -0.10% -0.07%
AUD 0.04% -0.08% -0.10% 0.04% -0.12% -0.06% -0.01%
JPY 0.16% 0.04% 0.06% 0.15% 0.14% 0.07% 0.10%
NZD 0.10% -0.02% -0.04% 0.11% 0.06% -0.06% 0.04%
CHF 0.06% -0.06% -0.07% 0.06% 0.02% -0.11% -0.05%

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.

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