- Gold price struggles to recover as investors turn cautious ahead of Fed Powell’s speech.
- On Tuesday, a majority of Fed policymakers supported raising interest rates further.
- Economists see cracks in the broader appeal for the US Dollar amid easing labor market conditions.
Gold price (XAU/USD) struggles for a firm footing as investors remain worried about guidance on interest rates ahead of remarks from Federal Reserve (Fed) Chair Jerome Powell’s speech on Wednesday. The precious metal remains under pressure as Fed policymakers have supported further policy-tightening in their recent statements, emphasizing that the battle against stubborn inflation is far from over.
Fed policymakers Michelle Bowman and Neel Kashkari delivered hawkish guidance on interest rates on Tuesday, citing worries about inflation remaining persistent due to the resilience of the US economy. On the contrary, Chicago Fed President Austan Goolsbee remained confident about inflation easing, adding that discussions over how far interest rates should be hiked should move towards and how long interest rates should remain high.
Daily Digest Market Movers: Gold price faces pressure as US Dollar extends recovery
- Gold price finds an intermediate support after printing a fresh two-week low below $1,960.00. The downside risks for Gold are persistent as investors await Federal Reserve Chair Jerome Powell’s remarks about the interest rate outlook.
- Investors will keenly watch whether Jerome Powell advocates for raising interest rates further or will say that the current monetary policy as sufficiently restrictive.
- The precious metal faces pressure as investors rush to buy the US Dollar amid caution that Fed policymakers could lean towards raising interest rates one more time to ensure price stability.
- US Fed Governor Michelle Bowman declared support for further policy-tightening to ensure the return of consumer inflation to 2% in a timely manner. Bowman added that the monetary policy appears to be restrictive and some tightening in financial conditions has been contributed by higher bond yields.
- Michelle Bowman further added that there is unusually high volatility regarding the economy and Middle East conflict.
- Minneapolis Fed President Neel Kashkari reiterated the need to do more work to avoid inflation ticking up again. Kashkari added that the labor market is robust and he is not seeing any meaningful evidence that the economy is weakening.
- Contrary to Michelle Bowman and Neel Kashkari, Chicago Fed President Austan Goolsbee said that the central bank is making significant progress in bringing down inflation. Kashkari also said he sees a decline in inflation in the next two months.
- Over the interest rate outlook, Austan Goolsbee said that the moment of arguing how high the policy rate should fade to how long the central bank should keep rates at this level as inflation is coming down, as reported by Reuters.
- Dallas Fed Bank President Lorie Logan didn’t comment on the interest rate outlook, in her statement on Tuesday, but warned that inflation is excessively high despite a recent decline in inflation.
- Lorie Logan acknowledged a minor easing in labor demand while the broader job market is upbeat. She remained cautioned about repeating energy shocks that could significantly disrupt the economy and impact near-term inflation expectations.
- In spite of Fed policymakers favoring further policy tightening to ensure price stability, bets for interest rates remaining unchanged in the range of 5.25%-5.50% till the end of 2023 are high. As per the CME Group Fedwatch tool, traders see a 90% chance for interest rates remaining unchanged till the year-end.
- The US Dollar Index (DXY) gathers strength for a fresh upside above the immediate resistance of 105.80 as investors remained cautious ahead of Fed Powell’s speech while the broader outlook worsened as cracks started appearing in US employment.
- On the global front, Middle East tensions continue to act as a cushion for bullions. The war between Israel and Palestine is seen escalating as the Israeli troops have initiated attacking Hamas tunnels in Gaza.
Technical Analysis: Gold price remains on backfoot near $1,960
Gold price turns sideways after searching an interim support below $1,960.00 as investors await Powell’s speech for further action. The precious metal oscillates inside Tuesday’s trading range but a range extension is widely anticipated after Powell’s guidance by the Fed in its December monetary policy meeting.
On a daily time frame, the yellow metal has found support near the 20-day Exponential Moving Average (EMA) after correcting from above $2,000. Momentum oscillators indicate that the bullish momentum has faded.
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.
