Gold price is trading with a positive bias for the third day in a row amid dovish Fed expectations. The USD is near its lowest level since September 1, providing some support. However, the prevailing risk-on mood may hold back bulls from making fresh bets and restrict further gains. Gold price (XAU/USD) has seen some buying for the third consecutive day on Wednesday and maintains its modest gains during the Asian session. The precious metal is currently trading around the $1,967-1,968 area, just below the weekly high reached on Tuesday. It is being supported by a weaker US Dollar (USD) due to expectations that the Federal Reserve (Fed) is finished raising interest rates. Despite this, the upbeat market sentiment, supported by dovish Fed expectations and a large liquidity injection by China’s central bank, may limit gains for the safe-haven Gold price. Additionally, the possibility of tensions in the Middle East easing suggests caution before anticipating an extension of this week’s rebound from the lowest level since October 18, around the $1,930 area reached on Monday.
The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline CPI was unchanged in October, with the yearly rate registering its smallest rise in two years at 3.2%. This reaffirms expectations that the Federal Reserve (Fed) has ended its policy tightening cycle and raises bets for a rate cut in May 2024. This triggered a steep decline in US Treasury bond yields. The yield on the benchmark 10-year US government bond is near a two-month low, keeping the US Dollar depressed and providing some support for the non-yielding Gold price. The prevalent risk-on mood is seen as a headwind for the safe-haven precious metal. However, the fundamental backdrop favors bullish traders and suggests that the path of least resistance remains to the upside.
A 600 billion Yuan liquidity injection by the People’s Bank of China, aimed at shoring up sluggish economic growth and encouraging more lending in the country, further boosts investor appetite. China’s economic data showed signs of improvement, with Industrial Production growing by 4.6% YoY in October and monthly Retail Sales advancing more than expected by 7.4% over the past 12 months.
The release of the US Producer Price Index (PPI) and monthly Retail Sales figures during the early North American session on Wednesday are key for short-term opportunities. The US PPI is anticipated to have risen by 0.1% in October, down from 0.5% in the previous month, while the US Retail Sales possibly contracted by 0.3% in October.
From a technical perspective, any move beyond the overnight swing high, around the $1,970-1,971 area, might face resistance near the $1,980 region. A corrective pullback could find support near the $1,950-1,949 area followed by the 200-day SMA at around $1,935.
The table below shows the percentage change of the USD against listed major currencies this week. The USD was the weakest against the Pound Sterling.
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 usually aim for a core inflation rate of around 2%. If inflation falls below target, the central bank may cut base lending rates to stimulate lending and boost the economy. If inflation rises, the central bank may raise base lending rates to lower inflation. Higher interest rates generally help strengthen a country’s currency. They also 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.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the headline rate set by the Federal Reserve at its FOMC meetings. 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.
