Gold price bounces off weekly low to defend 50-day pivotal support, not out of the woods yet

  • 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 limit the downside for the safe-haven metal.

Gold price (XAU/USD) remains under some selling pressure for the second straight day and maintains its offered tone through the early part of the European session on Wednesday. The precious metal, however, defends the 50-day Simple Moving Average (SMA) support and currently trades around the $2,024-2,025 area, just above the weekly low touched in the last hour. Investors further trim their bets for an early rate cut by the US central bank in the wake of the overnight remarks by Federal Reserve (Fed) Christopher Waller. This remains supportive of elevated US Treasury bond yields, which lift the US Dollar (USD) to over a one-month peak and undermine the non-yielding yellow metal.

Meanwhile,  diminishing odds for a more aggressive policy easing by the Fed, along with a further escalation of geopolitical tensions in the Middle East and unimpressive economic growth figures from China, continue to weigh on investors’ sentiment. This is evident from a generally softer tone around the equity markets and helps limit deeper losses for the safe-haven Gold price. Any meaningful recovery, however, still seems elusive as traders now look to the US macro data and speeches by influential FOMC members for short-term opportunities later during the North American session

Daily Digest Market Movers: Gold price remains depressed amid reduced Fed rate cut bets, bullish USD

  • 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 seems vulnerable near weekly low, break below 50-day SMA awaited

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 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%

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).


What are interest rates?

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.

How do interest rates impact currencies?

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.

How do interest rates influence the price of Gold?

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.

What is the Fed Funds rate?

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.

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