- Gold price drops to a fresh weekly low amid the underlying bullish tone surrounding the USD.
- Reduced bets for a March Fed rate cut push the US bond yields higher and underpin the buck.
- The geopolitical risks and China’s economic woes could limit losses for the safe-haven metal.
Gold price (XAU/USD) drifts lower for the second successive day on Wednesday and drops to a fresh weekly low, around the $2,020-2,019 area heading into the European session. Federal Reserve (Fed) Christopher Waller’s remarks on Tuesday forced investors to further scale back their expectations for an early interest rate cut by the US central bank. This remains supportive of elevated US Treasury bond yields, which lift the US Dollar (USD) to over a one-month peak and continues to drive flows away from the non-yielding yellow metal.
Meanwhile, reduced bets for a Fed rate cut in March, along with geopolitical tensions and rather unimpressive economic growth figures from China, further temper investors’ appetite for riskier assets. This is evident from a generally softer tone around the equity markets, albeit does little to revive demand for the safe-haven Gold price. This, in turn, suggests that the path of least resistance for the XAU/USD is to the downside. Traders now look to the US macro data and speeches by influential FOMC members for short-term opportunities.
Daily Digest Market Movers: Gold price is weighed down by stronger USD, Fed rate cut uncertainty
- Federal Reserve (Fed) Governor Christopher Waller’s remarks on Tuesday further tempered expectations for a March rate cut and act as a headwind for the non-yielding Gold price.
- Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
- The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, underpinning the US Dollar and capping the non-yielding yellow metal.
- The risk of a further escalation of tensions in the Middle East does little to provide any respite to the safe-haven XAU/USD or impress bullish traders.
- In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
- The official data released by the National Bureau of Statistics (NBS) showed that China’s economy grew at an annual rate of 5.2% in the final quarter of 2023.
- On a quarterly basis, Chinese GDP expanded by 1.0% in Q3 vs. 1.0% expected, while December Retail Sales and Industrial Production rose by 7.4% YoY and 6.8% YoY, respectively.
- Following the release of the high-impact data, the NBS noted that China’s economy faces a complex external environment and low consumer prices reflect insufficient domestic demand.
- The geopolitical risks, along with China’s economic woes, might hold back traders from placing aggressive bearish bets around the metal and help limit any further losses.
- Traders now look to the US macro data, which is expected to show that monthly Retail Sales grew by 0.4% in December and Industrial Production remained flat.
- Apart from this, scheduled speeches by Fed Governors Michael Barr and Michelle Bowman might influence the USD and provide some impetus to the commodity.
Technical Analysis: Gold price approaches 50-day SMA pivotal support, seems vulnerable to slide further
From a technical perspective, the 50-day SMA, currently around the $2,017 area, followed by the $2,013 region, or the monthly low, could protect the immediate downside ahead of 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 towards the December swing low, around the $1,973 zone. The XAU/USD could eventually drop to the $1,969-1,963 confluence, comprising the 100- and 200-day SMAs.
On the flip side, the $2,040-2,045 region now seems to act as an immediate strong barrier ahead of the $2,061-2,062 supply zone. Some follow-through buying has the potential to lift the Gold price further towards the $2,077 area, which if cleared decisively will negate any near-term negative bias. Bullish traders might then aim towards reclaiming the $2,100 psychological mark.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.71% | 0.92% | 0.65% | 1.77% | 1.51% | 1.59% | 1.04% | |
| EUR | -0.72% | 0.21% | -0.07% | 1.06% | 0.79% | 0.88% | 0.31% | |
| GBP | -0.94% | -0.20% | -0.28% | 0.85% | 0.59% | 0.68% | 0.12% | |
| CAD | -0.66% | 0.07% | 0.28% | 1.11% | 0.86% | 0.94% | 0.39% | |
| AUD | -1.80% | -1.06% | -0.85% | -1.13% | -0.26% | -0.17% | -0.74% | |
| JPY | -1.53% | -0.81% | -0.72% | -0.87% | 0.26% | 0.09% | -0.48% | |
| NZD | -1.62% | -0.89% | -0.69% | -0.96% | 0.17% | -0.09% | -0.57% | |
| CHF | -1.04% | -0.31% | -0.12% | -0.39% | 0.74% | 0.47% | 0.56% |
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.