Gold price hangs near multi-week low, focus remains glued to Fed decision

Gold price hangs near multi-week low, focus remains glued to Fed decision

Time Stamp: December 12, 2023 10:25 PM
Source Node: 3009967

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  • Gold price is seen consolidating its recent losses to a three-week trough.
  • Reduced bets for a March Fed rate cut cap the upside for the XAU/USD.
  • Traders also seem reluctant ahead of the crucial FOMC policy decision.

Gold price (XAU/USD) oscillates in a narrow trading band during the Asian session on Wednesday and is currently placed around the $1,980 area, just above a three-week low touched on Monday. The precious metal did get a minor lift on Tuesday following the release of the consumer inflation figures from the United States (US), though the uptick ran out of steam ahead of the $2,000 psychological mark. Traders refrain from placing aggressive directional bets and seek more clarity over the Federal Reserve’s (Fed) policy outlook. This, in turn, led to subdued range-bound price action for the second straight day ahead of the highly-anticipated FOMC policy decision later today.

The US central bank is universally expected to maintain the status quo and keep interest rates steady at the end of a two-day meeting on Wednesday. Hence, the market focus will be on the accompanying monetary policy statement and updated economic projections. This will be followed by Fed Chair Jerome Powell’s post-meeting press conference, which will be scrutinized closely for confirmation of a change in the policy stance. In fact, the markets are currently pricing in the possibility of at least four 25 basis point (bps) rate cuts by the Fed in 2024. Hence, a dovish pivot will exert heavy pressure on the US Dollar (USD) and trigger a fresh leg up for the non-yielding Gold price.

Heading into the key event risk, the release of the US Producer Price Index (PPI) during the early North American session might do little to provide any meaningful impetus to the Gold price. Meanwhile, the prevalent risk-on environment – as depicted by an extension of a rally in the equity market – might continue to act as a headwind for the safe-haven XAU/USD and cap any intraday recovery.

Daily Digest Market Movers: Gold price eyes Fed for some meaningful directional impetus

  • The uncertainty over the Federal Reserve’s near-term policy outlook holds back traders from placing directional bets around the Gold price and leads to subdued range-bound price action.
  • Data released from the United States on Tuesday showed that consumer prices rose unexpectedly in November, forcing traders to further scale back bets for a rate cut in March.
  • The US Labor Department reported that the headline Consumer Price Index (CPI) edged up 0.1% in November and the yearly rate ticked down to 3.1% from the 3.2% previous.
  • The annual Core CPI inflation, which excludes volatile food and energy prices, held steady at 4.0% as forecast and rose 0.1% on a monthly basis, little changed from the previous month.
  • The November numbers were still well above the Fed’s 2% target and come on top of the stronger-than-expected US jobs report last Friday, pointing to a still resilient economy.
  • The market focus remains glued to the outcome of the crucial two-day FOMC monetary policy meeting, scheduled to be announced later during the US session this Wednesday.
  • Investors will look for fresh cues about the timing of when the Fed may start cutting rates in 2024, which, in turn, will drive the US Dollar demand and influence the yellow metal.
  • Hopes for more stimulus from policymakers in China overshadow the risk of a further escalation of geopolitical tensions in the Middle East and remain supportive of the risk-on mood.
  • Reporting on the annual Central Economic Work Conference that ended on Tuesday, state media said that China will step up policy adjustments to support economic recovery in 2024.
  • Yemen’s Iran-backed Houthi rebels issue regulations for navigating through the Red Sea amid the Israel embargo and the warning includes a restriction on travel towards “Occupied Palestinian territories”.
  • This, however, does little to temper investors’ appetite for perceived riskier assets or dampen the underlying bullish market sentiment and benefit the safe-haven precious metal.

Technical Analysis: Gold price ignores the occurrence of a golden cross on the daily chart

From a technical perspective, the Gold price, so far, has managed to defend the 50% Fibonacci retracement level of the October-December rally to an all-time peak. This is closely followed by the 50-day Simple Moving Average (SMA), currently around the $1,969-1,968 region, below which the XAU/USD could slide to test the very important 200-day SMA, near the $1,953-1,952 area. The next relevant support is pegged near the $1,942-1,938 confluence, comprising the 100-day SMA and the 61.8% Fibo. level, which should act as a key pivot point. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a deeper corrective slide.

On the flip side, any meaningful recovery attempt might continue to attract some sellers near the $2,000 psychological mark and remain capped near the $2,010-2,012 static resistance. Some follow-through buying has the potential to lift the Gold price further towards the $2,030 hurdle en route to the $2,040 supply zone. The subsequent move-up will shift the near-term bias in favour of bullish traders against the backdrop of the occurrence of a golden cross, with the 50-day rising above the 200-day SMA. The XAU/USD might then climb to the $2,071-2,072 region before aiming to reclaim the $2,100 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 Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.21% -0.04% 0.07% 0.34% 0.36% 0.15% -0.46%
EUR 0.21%   0.18% 0.28% 0.55% 0.58% 0.36% -0.25%
GBP 0.05% -0.17%   0.11% 0.38% 0.41% 0.19% -0.42%
CAD -0.07% -0.28% -0.12%   0.26% 0.29% 0.08% -0.54%
AUD -0.34% -0.55% -0.39% -0.26%   0.03% -0.19% -0.81%
JPY -0.37% -0.59% -0.51% -0.30% -0.04%   -0.23% -0.84%
NZD -0.16% -0.37% -0.19% -0.08% 0.18% 0.21%   -0.62%
CHF 0.46% 0.25% 0.41% 0.53% 0.80% 0.83% 0.61%  

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 FAQs

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.

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