Gold price consolidates around $2,650 area as traders await FOMC Minutes
- Gold price struggles to attract buyers amid the Fed’s hawkish stance and elevated US bond yields.
- Trade war fears and geopolitical risks lend support to the XAU/USD amid a modest USD downtick.
- Investors look to the US macro data and FOMC meeting Minutes for some meaningful impetus.
Gold price (XAU/USD) stabilizes following the previous day's late pullback from the $2,665 hurdle as traders opt to move to the sidelines ahead of Wednesday's release of the FOMC Minutes later during the US session. In the meantime, the prospects for slower rate cuts by the Federal Reserve (Fed) continue to push the US Treasury bond yields higher and act as a headwind for the non-yielding yellow metal. Apart from this, the underlying strong US Dollar (USD) bullish tone turns out to be another factor that contributes to capping the commodity.
The downside for the Gold price, however, remains cushioned in the wake of the uncertainty around US President-elect Donald Trump's tariff plans. Furthermore, expectations that Trump's protectionist policies could reignite inflation should benefit the bullion's status as a hedge against rising prices. This, along with trade war fears, geopolitical risks and the risk-off mood, should continue to offer some support to the safe-haven precious metal and warrants some caution before placing aggressive bets or positioning for a firm intraday direction.
Gold price traders seem non-committed amid mixed fundamental cues
- The US Treasury bond yields and the US Dollar jumped on Tuesday after strong US data reaffirmed market expectations that the Federal Reserve will slow the pace of its rate-cutting cycle this year.
- The Institute for Supply Management reported that its Non-Manufacturing Purchasing Managers' Index (PMI) rose to 54.1 in December and the Prices Paid component rose to a nearly two-year high.
- Separately, the Job Openings and Labor Turnover Survey, or JOLTS report, showed that job openings unexpectedly increased to 8.098 million by the last day of November from the 7.839 million previous.
- The data pointed to a still resilient US economy and support prospects for fewer Fed rate cuts in 2025, lifting the yield on the benchmark 10-year US government bond to its highest level since April.
- Atlanta Fed President Raphael Bostic said that the central bank should be cautious with policy decisions amid the uneven progress on lowering inflation and err on the side of keeping rates elevated.
- US President-elect Donald Trump denied a Washington Post story that his administration will pursue a less aggressive tariff regime and target certain sectors critical to US national or economic security.
- Trump hinted at possible military intervention if Israeli captives held in Gaza are not released before he takes office, raising the risk of a further escalation of geopolitical tensions in the Middle East.
- Traders now look to Wednesday's US economic docket – featuring the release of the ADP report on private-sector employment and the usual Weekly Initial Jobless Claims – for short-term opportunities.
- The focus, however, remains on FOMC meeting Minutes, which will play a key role in influencing the USD price dynamics and providing a fresh impetus to the Gold price later during the US session.
Gold price bulls have the upper hand while above the $2,600 confluence
From a technical perspective, the $2,665 horizontal zone now seems to have emerged as an immediate strong barrier. Given that oscillators on the daily chart have just started moving in positive territory, a sustained strength beyond the said barrier will be seen as a fresh trigger for bulls and pave the way for additional gains. The subsequent move up might then lift the Gold price to an intermediate resistance near the $2,681-2,683 zone en route to the $2,700 mark.
On the flip side, weakness below the $2,635 area might continue to find some support near the weekly swing low, around the $2,615-2,614 region touched on Monday. This is followed by the $2,600 confluence, comprising the 100-day Exponential Moving Average (EMA) and a short-term ascending trend line extending from the November monthly trough. A convincing break below could expose the December swing low, around the $2,583 area, which if broken will shift the near-term bias in favor of bearish traders.
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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