- Gold price drifts lower for the fourth straight day and drops to a fresh multi-week low.
- Reduced bets for an early rate cut by the Fed continue to weigh on the yellow metal.
- Traders now look to the crucial FOMC policy decision for a fresh directional impetus.
Gold price (XAU/USD) remains under some selling pressure for the fourth straight day on Tuesday and drops to over a three-week low, around the $1,974 region heading into the European session. Data released from the United States (US) showed that consumer prices rose unexpectedly in November. This comes on the back of the stronger-than-expected US jobs report on Friday and weakens the case for an early policy easing by the Federal Reserve (Fed). This, in turn, is seen as a key factor driving flows away from the non-yielding yellow metal amid hopes for the introduction of more stimulus measures in China.
Investors, however, remain concerned about weak economic growth in China. Apart from this, geopolitical risks keep a lid on the optimism and could lend some support to the safe-haven Gold price. Traders might also refrain from placing aggressive bearish bets and prefer to wait for the outcome of the highly-anticipated FOMC monetary policy meeting. The market focus, meanwhile, will remain glued to the accompanying policy statement and updated economic projections, which include the so-called “dot plot”. This will be followed by Fed Chair Jerome Powell’s post-meeting press conference.
Investors will look for cues about an imminent shift in the Fed’s policy stance, which, in turn, will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the Gold price. The markets are currently pricing in the possibility of at least four 25 basis point (bps) rate cuts by the Fed in 2024. Hence, a dovish pivot will exert heavy pressure on the US Dollar (USD) and trigger a fresh leg up for the non-yielding Gold price. Nevertheless, the crucial FOMC policy decision should infuse volatility in the financial markets and provide some meaningful impetus to the XAU/USD.
Daily Digest Market Movers: Gold price continues losing ground as traders await Fed policy decision
- The uncertainty over the Federal Reserve’s near-term policy outlook holds back traders from placing directional bets around the Gold price and leads to subdued range-bound price action.
- Data released from the United States on Tuesday showed that consumer prices rose unexpectedly in November, forcing traders to further scale back bets for a rate cut in March.
- The US Labor Department reported that the headline Consumer Price Index (CPI) edged up 0.1% in November and the yearly rate ticked down to 3.1% from the 3.2% previous.
- The annual Core CPI inflation, which excludes volatile food and energy prices, held steady at 4.0% as forecast and rose 0.1% on a monthly basis, little changed from the previous month.
- The November numbers were still well above the Fed’s 2% target and come on top of the stronger-than-expected US jobs report last Friday, pointing to a still resilient economy.
- The market focus remains glued to the outcome of the crucial two-day FOMC monetary policy meeting, scheduled to be announced later during the US session this Wednesday.
- Investors will look for fresh cues about the timing of when the Fed may start cutting rates in 2024, which, in turn, will drive the US Dollar demand and influence the yellow metal.
- Hopes for more stimulus from policymakers in China overshadow the risk of a further escalation of geopolitical tensions in the Middle East and remain supportive of the risk-on mood.
- Reporting on the annual Central Economic Work Conference that ended on Tuesday, state media said that China will step up policy adjustments to support economic recovery in 2024.
- A senior Communist Party official said on Wednesday that China should set its 2024 fiscal deficit and special local government bonds at appropriate levels and optimise the structure of fiscal spending.
- Yemen’s Iran-backed Houthi rebels issue regulations for navigating through the Red Sea amid the Israel embargo and the warning includes a restriction on travel towards “Occupied Palestinian territories”.
- The US on Tuesday imposed new sanctions on more than 250 individuals and entities in an effort to crack down on Russia’s evasion of sanctions imposes after its invasion on Ukraine.
- This, however, does little to temper investors’ appetite for perceived riskier assets or dampen the underlying bullish market sentiment and benefit the safe-haven precious metal.
Technical Analysis: Gold price drops closer to 50-day SMA pivotal support
From a technical perspective, the Gold price, so far, has managed to defend the 50% Fibonacci retracement level of the October-December rally to an all-time peak. This is closely followed by the 50-day Simple Moving Average (SMA), currently around the $1,969-1,968 region, below which the XAU/USD could slide to test the very important 200-day SMA, near the $1,953-1,952 area. The next relevant support is pegged near the $1,942-1,938 confluence, comprising the 100-day SMA and the 61.8% Fibo. level, which should act as a key pivot point. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a deeper corrective slide.
On the flip side, any meaningful recovery attempt might continue to attract some sellers near the $2,000 psychological mark and remain capped near the $2,010-2,012 static resistance. Some follow-through buying has the potential to lift the Gold price further towards the $2,030 hurdle en route to the $2,040 supply zone. The subsequent move-up will shift the near-term bias in favour of bullish traders against the backdrop of the occurrence of a golden cross, with the 50-day rising above the 200-day SMA. The XAU/USD might then climb to the $2,071-2,072 region before aiming to reclaim the $2,100 round figure.
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 weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.21% | -0.04% | 0.07% | 0.34% | 0.36% | 0.15% | -0.46% | |
| EUR | 0.21% | 0.18% | 0.28% | 0.55% | 0.58% | 0.36% | -0.25% | |
| GBP | 0.05% | -0.17% | 0.11% | 0.38% | 0.41% | 0.19% | -0.42% | |
| CAD | -0.07% | -0.28% | -0.12% | 0.26% | 0.29% | 0.08% | -0.54% | |
| AUD | -0.34% | -0.55% | -0.39% | -0.26% | 0.03% | -0.19% | -0.81% | |
| JPY | -0.37% | -0.59% | -0.51% | -0.30% | -0.04% | -0.23% | -0.84% | |
| NZD | -0.16% | -0.37% | -0.19% | -0.08% | 0.18% | 0.21% | -0.62% | |
| CHF | 0.46% | 0.25% | 0.41% | 0.53% | 0.80% | 0.83% | 0.61% |
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
What does the Federal Reserve do, how does it impact the US Dollar?
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.
How often does the Fed hold monetary policy meetings?
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.
What is Quantitative Easing (QE) and how does it impact USD?
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.
What is Quantitative Tightening (QT) and how does it impact 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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