- Gold price ticks lower on Thursday amid a modest rebound in the US bond yields.
- Geopolitical risks and trade war fears limit losses for the safe-haven XAU/USD.
- The USD bulls remain on the sidelines ahead of the key US NFP report on Friday.
Gold price (XAU/USD) sticks to its modest intraday losses during the early part of the European session on Thursday, though it lacks follow-through selling and remains confined in a familiar range. The overnight hawkish remarks by a slew of influential FOMC members, including Federal Reserve (Fed) Chair Jerome Powell, reaffirmed expectations that the US central bank will adopt a cautious stance on cutting rates. This assists the US Treasury bond yields to rebound slightly from their lowest closing levels in more than a month and undermines the non-yielding yellow metal.
Apart from this, the upbeat market mood is seen as another factor denting demand for the traditional safe-haven Gold price. That said, persistent geopolitical risks stemming from the worsening Russia-Ukraine conflict, trade war fears, along with political turmoil in France and South Korea, act as a tailwind for the XAU/USD. Furthermore, a modest US Dollar (USD) downtick further contributes to limiting losses for the commodity. Traders also seem reluctant to place aggressive directional bets ahead of the release of the crucial US Nonfarm Payrolls (NFP) report on Friday.
Gold price traders refrain from placing directional bets amid mixed cues
- The Federal Reserve’s Beige Book showed on Wednesday that US economic activity expanded slightly in most regions since early October, with inflation rising at a modest pace and businesses expressing optimism about the future.
- St. Louis Fed President Alberto Musalem said that it may be appropriate to pause interest-rate cuts as soon as the December meeting as the risks of lowering borrowing costs too quickly are greater than those of easing too little.
- Fed Chair Jerome Powell acknowledged that the US economy is in very good shape and is definitely stronger than expected and that the central bank can take a little more cautious approach cutting interest rates toward neutral.
- Separately, San Francisco Fed President Mary Daly said there is no sense of urgency to lower interest rates and that a lot more work needs to be done to deliver on the 2% inflation target and durable economic growth.
- Furthermore, speculations that US President-elect Donald Trump’s policies will reignite inflation suggest that the Fed might stop cutting rates or possibly raise them again, triggering a modest bounce in the US bond yields.
- The yield on the benchmark 10-year US government bond rebounds after registering its lowest closing level since October 21, which, in turn, is seen exerting some downward pressure on the non-yielding Gold price on Thursday.
- Meanwhile, the US Dollar, so far, has been struggling to gain any meaningful traction and might act as a tailwind for the XAU/USD amid concerns that Trump’s trade tariffs could trigger the second wave of global trade wars.
- Traders now look forward to the release of the usual US Weekly Initial Jobless Claims for some impetus later this Thursday. The focus, however, remains glued to the closely watched US Nonfarm Payrolls (NFP) report on Friday.
Gold price remains confined in familiar range; bearish potential seems intact
From a technical perspective, this week’s breakdown below a multi-day-old ascending channel was seen as a key trigger for bearish traders. That said, neutral oscillators on daily/4-hour charts make it prudent to wait for some follow-through selling below the recent trading range support, around the $2,630 area, before positioning for further losses. The subsequent downfall has the potential to drag the Gold price below the weekly swing low, around the $2,622-2,621 region, towards the $2,600 mark. The downward trajectory could extend further towards the 100-day Simple Moving Average (SMA), currently pegged near the $2,581 area, en route to the November monthly trough, around the $2,537-2,536 region.
On the flip side, the $2,655 area might continue to act as an immediate barrier ahead of last Friday’s swing high, around the $2,666 region. Some follow-through buying, leading to a subsequent strength beyond the $2,677-2,678 hurdle, should allow the Gold price to aim to reclaim the $2,700 round figure. Any further move up, however, is likely to confront stiff resistance near the $2,721-2,722 supply zone, which if cleared decisively might shift the bias in favor of bulls and pave the way for some meaningful appreciating move in the near term.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.