- Gold price struggles to gain any meaningful traction amid a combination of diverging forces.
- Geopolitical risks and China’s economic woes lend some support to the safe-haven XAU/USD.
- Hawkish Fed expectations favour the USD bulls and cap the upside for the non-yielding metal.
Gold price (XAU/USD) extends its subdued range-bound price action through the Asian session on Tuesday and consolidates its losses registered over the past two days, to the $2,015 area or over a one-week low touched the previous day. Investors have been scaling back their expectations for a more aggressive policy easing by the Federal Reserve (Fed) in the wake of the incoming strong US macro data, which pointed to a still resilient economy. This, in turn, is seen as a key factor acting as a headwind for the non-yielding yellow metal.
That said, persistent worries about geopolitical risks stemming from conflicts in the Middle East and slowing growth in China – the world’s second-largest economy – lends some support to the safe-haven Gold price. Furthermore, a modest pullback in the US Treasury bond yields prompts some US Dollar (USD) profit-taking and further contributes to limiting the downside for the XAU/USD. Meanwhile, bets that the Fed will keep rates higher for longer suggest that the path of least resistance for the precious metal is to the downside.
Daily Digest Market Movers: Gold price seems vulnerable as traders pare Fed rate cut bets
- Persistent worries about geopolitical tensions stemming from conflicts in the Middle East and slowing economic growth in China lend some support to the safe-haven Gold price.
- The Institute for Supply Management (ISM) reported on Monday that the US services sector growth picked up pace in January amid an increase in new orders.
- The US ISM Non-Manufacturing PMI increased to 53.4 last month from 50.5 in December, with a measure of input prices or the Prices Paid sub-component rising to an 11-month high.
- This comes on top of Friday’s blowout US jobs report and reaffirmed the view that the economy is in good shape, diminishing the chances of a rate cut by the Federal Reserve in March.
- Moreover, hawkish comments by several Fed officials suggest that the first-rate cut might not come until May or June, which remains supportive of elevated US Treasury bond yields.
- The yield on the rate-sensitive 2-year US government bond climbed to a one-month top on Monday and the benchmark 10-year US Treasury yield holds comfortably above the 4.0% mark.
- The US Dollar stands tall near its highest level in almost three months and might further contribute to capping any meaningful appreciating move for the non-yielding yellow metal.
- In an interview with the CBS News show 60 Minutes that aired on Sunday, Fed Chair Jerome Powell said that the central bank could be patient in deciding when to cut interest rates.
- Minneapolis Fed President Neel Kashkari argued that a possibly higher neutral rate means that the central bank can take more time to assess upcoming data before beginning interest rate cuts.
- Chicago Fed President Austan Goolsbee noted that there have been seven months of good inflation reports, though did not comment on the timing of the first interest rate cut.
- China’s Central Huijin Investment company reportedly said that it will increase its investment in Chinese stock ETFs and are determined to safeguard the stable operation of the market.
Technical Analysis: Gold price consolidates near one-week low before the next leg down
From a technical perspective, some follow-through selling below the $2,012-2,010 area might expose the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day Simple Moving Average (SMA) support, currently pegged around the $1,984-1,983 zone. The XAU/USD could eventually drop to challenge the very important 200-day SMA, near the $1,965 region.
On the flip side, momentum beyond the 50-day SMA, near the $2,033 area, is likely to confront resistance near the $2,054-2,055 zone ahead of the $2,065 region, or last week’s swing high. Given that oscillators on the daily chart are just holding in the positive territory, some follow-through buying has the potential to lift the Gold price towards the $2,078-2,079 region, or the YTD peak set in January. The subsequent move-up should allow the XAU/USD to reclaim the $2,100 mark and climb further to the next relevant hurdle near the $2,020 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | -0.06% | -0.16% | -0.31% | -0.01% | -0.17% | -0.04% | |
| EUR | 0.03% | -0.04% | -0.15% | -0.29% | 0.01% | -0.14% | 0.00% | |
| GBP | 0.06% | 0.03% | -0.11% | -0.26% | 0.04% | -0.11% | 0.02% | |
| CAD | 0.15% | 0.14% | 0.11% | -0.15% | 0.15% | -0.01% | 0.13% | |
| AUD | 0.33% | 0.30% | 0.26% | 0.17% | 0.32% | 0.15% | 0.27% | |
| JPY | 0.03% | 0.00% | -0.06% | -0.15% | -0.31% | -0.14% | -0.02% | |
| NZD | 0.17% | 0.14% | 0.11% | 0.01% | -0.16% | 0.15% | 0.13% | |
| CHF | 0.02% | -0.01% | -0.04% | -0.12% | -0.29% | 0.02% | -0.15% |
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.
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