- Gold price remains on the defensive near a multi-week trough touched on Wednesday.
- Sliding US bond yields undermine the USD and lend some support to the XAU/USD.
- China’s economic woes contribute to limiting losses ahead of Fed Chair Powell’s speech.
Gold price (XAU/USD) struggles to capitalize on its modest Asian session uptick to the $1,955 area and is currently placed near its lowest level since October 19 touched the previous day. A slew of influential Federal Reserve (Fed) officials maintained a balanced tone and offered mixed signals about the future rate hike path, which, in turn, has been driving flows away from the non-yielding yellow metal since the beginning of this week. Furthermore, investors now seem less worried about a further escalation in the Israel-Hamas conflict. This is seen as another factor that contributes to eroding demand for the safe-haven precious metal.
Market participants, meanwhile, seem convinced that the US central bank will start cutting rates in 2024. This leads to a further decline in the US Treasury bond yields and keeps the US Dollar (USD) on the back foot, lending some support to the Gold price. Apart from this, the prevalent cautious market mood, along with China’s economic woes, could help limit the downside for the precious metal. Market participants now look to the release of the usual Weekly Initial Jobless Claims data from the US for some impetus later during the early North American session, though the focus will remain glued to Fed Chair Jerome Powell’s speech.
Daily Digest Market Movers: Gold price continues to be weighed down by reviving bets for more rate hikes by the Federal Reserve
- Gold price remains depressed through the Asian session on Thursday, near its lowest since October 19, albeit lacking follow-through selling amid a modest US Dollar downtick.
- The yield on the benchmark 10-year US government bond held near its lowest in more than a month and undermined the USD, helping limit losses for the non-yielding yellow metal.
- Federal Reserve officials keep the door open for further policy tightening, though the CME FedWatch Tool indicates an 18% chance that rate cuts could come as early as March.
- Fed Governor Lisa Cook views the current policy as restrictive enough for price stability, while Minneapolis Fed President Neil Kashkari questions its adequacy in light of the US economic resilience.
- Chicago Fed President Austan Goolsbee stressed the need to focus on how high rates should remain, whereas Fed Governor Michelle Bowman discussed additional rate hikes this year.
- Fed Chair Jerome Powell, meanwhile, did not comment on monetary policy or the economic outlook on Wednesday and is scheduled to speak again at another conference this Thursday.
- The latest Chinese inflation figures released earlier this Thursday pointed to sustained disinflationary pressures in the wake of the worsening outlook for the domestic economy.
- The National Bureau of Statistics reported that the headline CPI in China shrank 0.1% in October as compared to a 0.2% rise in the previous month and the yearly rate shrank 0.2%.
- China’s Producer price index (PPI) declined for the 13th straight month, by 2.6% in October, slightly higher than the 2.5% prior, though it was better than the 2.8% drop anticipated.
Technical Analysis: Gold price now seems vulnerable to slide further and challenge the 200-day SMA support near the $1,933 area
From a technical perspective, the overnight break and close below the $1,954-1,953 support zone favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further depreciating move. Hence, a subsequent slide towards testing the very important 200-day Simple Moving Average (SMA), currently pegged around the $1,933 region, looks like a distinct possibility. This is followed by the 100-day SMA, near the $1,927-1,926 area, which if broken decisively will suggest that the Gold price has topped out in the near term.
On the flip side, any meaningful recovery attempt might now confront stiff resistance near the $1,970 level. A sustained strength beyond could trigger a short-covering move towards the next relevant hurdle near the $1,980 region en route to the $1,990-$1,992 zone. Some follow-through buying will shift the bias back in favour of bullish traders and lift the Gold price further beyond the $2,000 psychological mark, towards retesting a multi-month top, around the $2,009-2,010 area touched in October.
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.
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).
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.