Gold price bears have the upper hand near two-week low amid elevated US bond yields

  • Gold price meets with a fresh supply on Monday and slides back closer to the post-NFP low.
  • Diminishing odds for more aggressive easing by the Fed continue to weigh on the XAU/USD.
  • A softer risk tone to limit losses amid subdued USD demand ahead of the US CPI on Thursday. 

Gold price (XAU/USD) meets with a fresh supply on the first day of a new week and slides back closer to over a two-week low touched in the aftermath of the upbeat US monthly employment details on Friday. The popularly known Nonfarm Payrolls (NFP) report pointed to a still resilient US labor market and gives the Federal Reserve (Fed) more headroom to keep rates higher for longer. Furthermore, the recent hawkish remarks by Fed officials forced investors to continue scaling back their expectations for a more aggressive policy easing. This, in turn, remains supportive of elevated US Treasury bond yields and is seen driving flows away from the non-yielding yellow metal.

The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at its March policy meeting and a cumulative of five 25 basis points (bps) rate cut for 2024. This keeps the US Dollar (USD) bulls on the defensive and could lend some support to the Gold price. Apart from this, a generally weaker risk tone should act as a tailwind for the safe-haven precious metal. Investors might also prefer to wait on the side and look to the US consumer inflation figures on Thursday before placing fresh directional bets. In the absence of any relevant US economic data, traders on Monday will take cues from a scheduled speech by Atlanta Fed President Raphael Bostic.

Daily Digest Market Movers: Gold price is pressured by uncertainty over early Fed rate cuts

  • Investors further scale back their expectations for an imminent shift in the Federal Reserve’s policy stance following the release of a robust December monthly US jobs report on Friday.
  • The US economy added 216K new jobs last week as compared to 170K expected, while the unemployment rate held steady at 3.7% vs. consensus estimates for an uptick to 3.8%.
  • Adding to this, US Factory Orders surprised to the upside and grew more than expected in November, by 2.6%, after declining 3.4% in October (revised slightly up from -3.6%).
  • Separately, the Institute for Supply Management (ISM) survey indicated that the US services sector, which accounts for more than two-thirds of the economy, slumped last month.
  • The ISM’s Non-Manufacturing Index dropped to 50.6 in December – the lowest reading since May – and the employment sub-component plunged to 43.3 – the lowest since July 2020.
  • Dallas Fed President Lorie Logan noted that if the US central bank does not maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up, reversing progress.
  • This comes after Richmond Fed President Thomas Barkin last week expressed confidence that the economy is on its way to a soft landing and said that rate hikes remain on the table.
  • The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, which acts as a tailwind for the US Dollar and is seen undermining the Gold price.
  • The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at the March meeting and a cumulative of five 25 basis points (bps) rate cuts for 2024.
  • China’s economic woes, along with an escalation of tensions in the Middle East, could lend some support to the safe-haven XAU/USD ahead of the US consumer inflation figures on Thursday.
  • Lebanese militant group Hezbollah sent a barrage of rockets into northern Israel in what it called a “preliminary response” to the assassination of Hamas senior leader Saleh al-Arouri on Tuesday.
  • The markets react little to an agreement between House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer on topline spending level, which breaks the deadlock to avoid a shutdown.

Technical Analysis: Gold price hangs near multi-week low, seems vulnerable to slide further

From a technical perspective, any subsequent slide is likely to find some support near the $2,030 level ahead of Friday’s swing low, around the $2,024 area. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the Gold price to the 50-day Simple Moving Average (SMA), currently around the $2,012-2,011 area. This is followed by the $2,000 psychological mark, which if broken should pave the way for a further near-term depreciating move.

On the flip side, momentum beyond the $2,050 immediate hurdle might continue to confront stiff resistance near the $2,064-2,065 area ahead of the $2,077 zone. A sustained strength beyond the said hurdles might prompt a short-covering rally and allow the Gold price to aim back towards reclaiming the $2,100 round-figure mark. Some follow-through buying will negate any negative outlook and shift the near-term bias back in favour of bullish traders.

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 Japanese Yen.

USD 0.08%0.12%0.07%0.18%-0.19%0.18%0.12%
EUR-0.07% 0.05%0.01%0.12%-0.25%0.12%0.04%
GBP-0.10%-0.03% -0.02%0.09%-0.28%0.09%0.01%
CAD-0.07%0.00%0.04% 0.11%-0.24%0.10%0.04%
AUD-0.19%-0.10%-0.08%-0.10% -0.33%-0.02%-0.07%
JPY0.15%0.26%0.28%0.26%0.37% 0.37%0.28%
NZD-0.16%-0.11%-0.08%-0.08%0.00%-0.36% -0.05%
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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