Gold price remains confined in a familiar range; looks to Fed’s Powell for fresh impetus
- Gold price continues its struggle to gain any meaningful traction on Wednesday.
- Bets for a less dovish Fed and an uptick in the US bond yields cap the precious metal.
- Geopolitical risks and trade war fears lend some support amid subdued USD demand.
Gold price (XAU/USD) extends its consolidative price move on Wednesday and oscillates in a narrow range below the $2,650 level during the Asian session. Traders now seem reluctant and opt to wait for more cues about the Federal Reserve's (Fed) rate-cut path before placing directional bets. Hence, the market focus will remain glued to Fed Chair Jerome Powell's speech later today. Apart from this, the closely watched US Nonfarm Payrolls (NFP) report should guide Fed policymakers on their next monetary policy decision and provide some meaningful impetus to the non-yielding yellow metal.
In the meantime, the upbeat US data released on Tuesday eased fears of a significant slowdown in the labor market. This, along with expectations that US President-elect Donald Trump's expansionary policies will boost inflation, might force the Fed to take a cautious stance on cutting rates. This, in turn, remains supportive of a modest uptick in the US Treasury bond yields, which acts as a tailwind for the US Dollar (USD) and caps the upside for the Gold price. That said, persistent geopolitical uncertainty and concerns about Trump's tariff plans continue to offer some support to the safe-haven XAU/USD.
Gold price traders await more cues about the Fed’s rate-cut path before placing directional bets
- Traders now seem reluctant to place aggressive directional bets around the Gold price and await Federal Reserve Chair Jerome Powell's speech for cues about the interest rate outlook.
- A survey (JOLTS) published by the US Bureau of Labor Statistics (BLS) on Tuesday showed that the number of job openings increased solidly from 7.37 million to 7.74 million in October.
- The strong US labor market report comes on top of stalling progress in lowering inflation to the 2% target and suggests that the US central bank could pause its rate-cutting cycle next year.
- The prospects for a less dovish Fed remain supportive of a modest uptick in the US Treasury bond yields, though does little to impress the US Dollar bulls or provide any meaningful impetus.
- According to the CME Group's FedWatch Tool, the markets are still pricing over a 70% chance that the Fed will cut rates by 25 basis points at its upcoming meeting in December.
- San Francisco Fed President Mary Daly said that the US economy is in a good place the balanced labor market is not a source of inflation and that the December rate cut is not off the table.
- Fed Governor Adrianna Kugler noted that the progress on inflation is still underway and the central bank will make decisions meeting by meeting and that the policy is not on a preset course.
- Chicago Fed President Austan Goolsbee said that rates remain restrictive and need to come down a fair amount from where they are now over the next year if inflation gets close to the target.
- US President-elect Donald Trump pledged to impose big tariffs against America’s three biggest trading partners – Mexico, Canada and China – and also threatened a 100% tariff on 'BRICS' nations.
- Israel carried out its biggest wave of air strikes since the truce agreement with Lebanon in retaliation to the firing of two rockets at Israeli-occupied territory by the Iran-backed group Hezbollah.
Gold price technicals suggest that the path of least resistance remains to the downside
From a technical perspective, the recent range-bound price action might still be categorized as a bearish consolidation phase against the backdrop of last week's decline. Adding to this, this week's breakdown below a four-day-old ascending channel favors bearish traders. That said, neutral oscillators on the daily chart suggest that any further slide below the overnight swing low, around the $2,622-2,621 area, might continue to find some support near the $2,600 mark. Some follow-through selling, meanwhile, might expose the 100-day Simple Moving Average (SMA), currently around the $2,579-2,78 zone, below which the Gold price could retest the November monthly trough, around the $2,537-2,536 region.
On the flip side, the $2,655 area, followed by the $2,666 region might act as immediate strong barriers. The next relevant hurdle is pegged near the $2,677-2,678 zone, above which the Gold price could aim to reclaim the $2,700 round figure. Any further move up is likely to confront stiff resistance near the $2,721-2,722 supply zone. A sustained strength beyond the latter might shift the bias in favor of bullish traders and pave the way for some meaningful appreciating move in the near term.
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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