- Gold price hits a fresh two-month low amid bets that the Fed will keep rates higher for longer.
- The expectations were reaffirmed by the stronger-than-expected US CPI released on Tuesday.
- A softer risk tone could lend support to the safe-haven XAU/USD and help limit further losses.
Gold price (XAU/USD) enters a bearish consolidation phase below the $2,000 psychological mark and oscillates near a two-month low touched during the Asian session on Wednesday. Investors now seem convinced that the Federal Reserve (Fed) will keep interest rates higher for longer in the wake of a still resilient US economy and sticky inflation. The bets were reaffirmed by a stronger-than-expected US inflation report released on Tuesday, which remains supportive of elevated US Treasury bond yields and continues to undermine the non-yielding yellow metal.
The US Dollar (USD) bulls, meanwhile, take a breather following the post-US CPI strong move up to the highest level since November 14. This, along with a generally weaker tone across the global equity markets, helps the safe-haven Gold price to defend the 100-day Simple Moving Average (SMA) support. That said, the aforementioned fundamental backdrop suggests that the path of least resistance for the precious metal remains to the downside. Hence, any attempted recovery might be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
Daily Digest Market Movers: Gold price remains depressed near two-month low amid delayed Fed rate cut bets
- The US inflation data released on Tuesday tempered prospects of an early interest rate cut by the Federal Reserve and continues to undermine the non-yielding Gold price.
- The Bureau of Labor Statistics reported that the headline US CPI rose by 0.3% in January and softened to the 3.1% YoY rate from the 3.4% in December, beating expectations.
- Furthermore, the Core CPI, which excludes volatile food and energy prices, also surpassed consensus estimates and matched December’s increase of 3.9%.
- Against the backdrop of the recent stronger US macro data, the still-too-high consumer inflation gives the Fed little reason to rush on cut interest rates.
- The CME Group’s FedWatch Tool indicates just over a 35% chance of a rate cut in April and that the Fed will likely not cut rates until the June policy meeting.
- The expectations lift the yield on the benchmark 10-year US government bond to its highest level since December 1 and act as a tailwind for the US Dollar.
- Renewed concerns over higher for longer interest rates temper investors’ appetite for riskier assets and assist the XAU/USD to defend the 100-day SMA support.
Technical Analysis: Gold price consolidates around the 100-day SMA support before the next leg down
From a technical perspective, some follow-through selling below the $1,990-1,988 region (100-day SMA) might expose the very important 200-day SMA support, currently pegged near the $1,965 area. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move. The Gold price might then fall to an intermediate support near the $1,952-1,950 zone before eventually dropping to the November 2023 low, around the $1,932-1,931 region.
On the flip side, any attempted recovery beyond the $2,000 mark now seems to confront stiff resistance near the $2,011-2,012 area. That said, some follow-through buying, leading to a subsequent strength beyond the $2,015 level, might trigger a short-covering rally and lift the Gold price to the 50-day SMA, currently around the $2,030 region. The latter should act as a key pivotal point, which if cleared decisively should pave the way for additional gains beyond the $2,044-2,045 intermediate hurdle, towards the $2,065 supply 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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | -0.05% | -0.03% | -0.10% | -0.12% | -0.20% | -0.10% | |
| EUR | 0.02% | -0.03% | -0.02% | -0.08% | -0.11% | -0.18% | -0.08% | |
| GBP | 0.04% | 0.03% | 0.01% | -0.07% | -0.07% | -0.15% | -0.05% | |
| CAD | 0.03% | 0.01% | -0.01% | -0.06% | -0.08% | -0.17% | -0.07% | |
| AUD | 0.11% | 0.10% | 0.07% | 0.09% | -0.01% | -0.08% | 0.01% | |
| JPY | 0.12% | 0.10% | 0.08% | 0.11% | -0.04% | -0.08% | 0.02% | |
| NZD | 0.21% | 0.18% | 0.15% | 0.17% | 0.11% | 0.08% | 0.12% | |
| CHF | 0.09% | 0.08% | 0.05% | 0.07% | -0.01% | -0.02% | -0.10% |
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).
US Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.