- Gold price holds steady below the weekly high and seems poised to appreciate further.
- Bets that the Fed is done raising rates keep the USD depressed and lend some support.
- The prevalent risk-on mood might hold back bulls from placing fresh bets and cap gains.
Gold price (XAU/USD) struggles to capitalize on its weekly gains registered over the past two days and oscillates in a narrow trading band during the Asian session on Wednesday. The US Dollar (USD) ticks higher and recovers a part of the previous day’s slump to its lowest level since September 1. Apart from this, a generally positive tone around the equity markets turns out to be another factor acting as a headwind for the safe-haven precious metal.
That said, expectations that the Federal Reserve (Fed) is done raising interest rates are keeping a lid on any meaningful USD upside and continue to lend support to the non-yielding Gold price. This, in turn, suggests that the path of least resistance for the XAU/USD is to the upside and supports prospects for an extension of the recent bounce from the 200-day Simple Moving Average (SMA), around the $1,930 area, or its lowest level since October 18 touched on Monday.
Daily Digest Market Movers: Gold price remains supported by dovish Fed expectations, bolstered by softer US CPI data
- The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline CPI was unchanged in October, while the yearly rate registered its smallest rise in two years and decelerated to 3.2% from 3.7% in September.
- The data reaffirms expectations that the Federal Reserve (Fed) has ended its policy tightening cycle and lifts bets for a rate cut in May 2024, which, in turn, triggered the overnight steep decline in the US Treasury bond yields.
- The yield on the benchmark 10-year US government bond languishes near a two-month low, keeping the US Dollar depressed near its lowest level since September 1 and lending some support to the non-yielding Gold price.
- The prevalent risk-on mood is seen acting as a headwind for the safe-haven precious metal, though the fundamental backdrop favours bullish traders and suggests that the path of least resistance remains to the upside.
- China’s Industrial Production grew by 4.6% YoY in October, better than the 4.5% rise in the previous month and consensus estimates, and the monthly Retail Sales advanced more than expected, by 7.4% over the past 12 months.
- China’s Fixed Asset Investment climbed by 2.9% YoY during the reported month as compared to the 3.1% anticipated and September reading. The data does little to influence the market sentiment or provide any impetus.
- Market participants now look to the release of the US Producer Price Index (PPI) and monthly Retail Sales figures for short-term opportunities later during the early North American session this Wednesday.
- The headline US PPI is anticipated to have risen by 0.1% in October, down from 0.5% in the previous month, and the yearly rate is seen falling below the 2.0% mark, though the core PPI is expected to match September’s readings.
- The US Retail Sales possibly contracted by 0.3% in October, down sharply from the 0.7% rise registered in the previous month, while sales excluding automobiles are expected to remain flat MoM.
Technical Analysis: Gold price needs to move beyond the $1,980 barrier for bulls to seize back near-term control
From a technical perspective, any subsequent move beyond the overnight swing high, around the $1,970-1,971 area, is likely to confront some resistance near the $1,980 region. Some follow-through buying has the potential to lift the Gold price towards the $1,991-1,992 hurdle en route to the $2,000 psychological mark and a multi-month peak, around the $2,009-2,010 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.
On the flip side, a corrective pullback might now attract some buyers and remain limited near the $1,950-1,949 area. This is followed by a cluster of supports near the 200-day SMA, currently pegged around the $1,935 region, and the 100- and the 50-day SMAs confluence near the $1,928-1,925 zone. Failure to defend the said support levels would make the Gold price vulnerable to accelerate the fall towards the $1,900 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 Pound Sterling.
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.