- Gold price ticks lower on Tuesday and is weighed down by a combination of factors.
- A slew of Fed officials pushed back against market bets for early rate cuts near year.
- Geopolitical risks should act as a tailwind ahead of the US PCE Price Index on Friday.
Gold price (XAU/USD) struggles to capitalize on the previous day’s positive move and trades with a mild negative bias during the early European session on Tuesday. A slew of influential Federal Reserve (Fed) officials recently attempted to downplay bets that the US central bank will pivot away from its hawkish stance and push back against expectations for early rate cuts in 2024. This, along with the post-Bank of Japan (BoJ) heavy selling around the Japanese Yen (JPY), lends support to the US Dollar (USD) and exerts some pressure on the non-yielding yellow metal.
Meanwhile, the robust risk-on sentiment pervading across the global equity markets, with US stock indices ending close to the record high on Monday, is seen as another factor undermining the safe-haven Gold price. That said, geopolitics remains the biggest risk for the markets amid growing worries about a deeper global economic downturn, particularly in China and the Eurozone. This, in turn, could act as a tailwind for the XAU/USD and hold back bearish traders from placing aggressive bets ahead of a key US inflation reading, due for release on Friday.
The US Core Personal Consumption Expenditure (PCE) Price Index will be looked upon for fresh clues about the Fed’s future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the Gold price. In the meantime, traders on Tuesday will take cues from the US housing market data – Building Permits and Housing Starts. Apart from this, a scheduled speech by Richmond Fed President Thomas Barkin might influence the XAU/USD and produce short-term opportunities later during the North American session.
Daily Digest Market Movers: Gold price bulls seem reluctant amid Fed uncertainty
- Chicago Federal Reserve President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, pushed back against market bets on interest rate cuts on Monday.
- Goolsbee said that he was confused over the market reaction to last week’s FOMC meeting and that the central bank is not precommiting to cutting rates soon and swiftly.
- Separately, Cleveland Fed President Loretta Mester noted that financial markets had gotten a little bit ahead of the central bank on when to expect interest rate cuts next year.
- This comes on the back of New York Fed President John Williams’s remarks on Friday that it was premature to speculate about rate cuts and caps the upside for the Gold price.
- The markets, however, seem convinced that the Fed will pivot to easing by the first half of 2024, which continues to undermine the US Dollar and lends support to the metal.
- Concerns over geopolitical risks linked to the conflict in the Middle East should further contribute to limiting any meaningful downfall for the safe-haven precious metal.
- Yemen’s Iran-aligned Houthi militants launched a series of drone and missile attacks on ships in the southern Red Sea, which it says are a response to Israel’s assault on the Gaza Strip.
- US Defence Secretary Lloyd Austin announced the formation of a multinational coalition and the launch of Operation Prosperity Guardian to address the Houthi threat in the Red Sea.
- Investors now look forward to the US Core Personal Consumption Expenditure (PCE) Price Index on Friday for clues about the Fed’s future policy decisions.
Technical Analysis: Gold price holds above $2,010 resistance breakpoint
From a technical perspective, the Gold price needs to find acceptance above the $2,040 supply zone for bulls to seize near-term control. This is followed by last week’s swing high, around the $2,049-2,050 region, which if cleared will set the stage for a move towards the next relevant barrier near the $2,072-2,073 area. The upward trajectory could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.
On the flip side, the $2,015 area might continue to protect the immediate downside ahead of the 2,010 horizontal resistance breakpoint and the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable to challenge the 50-day Simple Moving Average (SMA) support, currently pegged near the $1,985 level before dropping to last week’s swing low, around the $1,973 area. Bears might then aim to test the 200-day SMA, near the $1,956 zone.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.05% | -0.08% | -0.06% | -0.31% | 0.46% | -0.31% | -0.06% | |
| EUR | 0.05% | -0.03% | -0.01% | -0.25% | 0.51% | -0.25% | 0.01% | |
| GBP | 0.08% | 0.02% | 0.02% | -0.23% | 0.53% | -0.24% | 0.02% | |
| CAD | 0.06% | 0.01% | -0.01% | -0.25% | 0.50% | -0.25% | 0.00% | |
| AUD | 0.30% | 0.26% | 0.23% | 0.25% | 0.76% | 0.00% | 0.24% | |
| JPY | -0.46% | -0.49% | -0.54% | -0.52% | -0.77% | -0.76% | -0.51% | |
| NZD | 0.31% | 0.25% | 0.23% | 0.24% | 0.00% | 0.77% | 0.24% | |
| CHF | 0.06% | -0.01% | -0.02% | 0.00% | -0.24% | 0.52% | -0.24% |
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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