- The price of Gold attracts some buying and moves away from the more than one-week low recorded on Wednesday.
- Geopolitical risks, China's economic problems and new selling around the dollar lend some support to the yellow metal.
- A rebound in US bond yields caps XAU/USD gains ahead of key US labor market reports.
On Wednesday, the price of Gold (XAU/USD) fell to a one-and-a-half-week low due to rising US Treasury yields and a strengthening Dollar. However, US bond yields began to lose traction after the December 12-13 FOMC meeting minutes reflected a consensus among policymakers that inflation is under control and concerns about downside risks. the decline for the economy associated with an excessively restrictive stance. This, along with geopolitical risks and China's economic woes, allowed the safe-haven precious metal to attract some buyers near the $2,030 area and gain some traction on Thursday.
The dollar, for its part, is experiencing some selling and, for now, appears to have halted a strong four-day recovery trend from multi-month lows. This is considered another factor that benefits the price of Gold denominated in US dollars. That said, investors remain doubtful about when the Federal Reserve (Fed) will begin cutting interest rates. Separately, Richmond Fed President Thomas Barkin said Wednesday that rate hikes remain on the table. This has led to a slight rally in US Treasury yields, which is seen as capping the yellow metal, which offers no yield. Traders also appear reticent and are seeking more clarity on the Fed's policy outlook. Therefore, attention remains focused on the release of US non-farm payrolls (NFP) on Friday.
Meanwhile, Thursday's US economic docket, with the ADP private sector employment report and the usual initial jobless claims, will be examined for short-term opportunities later in the US session. However, the mixed fundamental background mentioned above warrants some caution before opening new directional positions around the price of Gold. Therefore, strong follow-through buying is needed to confirm that the week-long downtrend is over and position for any new intraday appreciation movement for the XAU/USD.
Daily Market Summary: Gold Price Struggles to Capitalize on Modest Intraday Gains
- Expectations that the Federal Reserve will cut rates in March, along with geopolitical tensions, are helping the price of gold build on the previous day's rebound from more than a week-old lows.
- Minutes from the FOMC's December meeting revealed that members generally considered the addition of “any” to the statement to be an indication that policy rates are likely near their maximum level.
- Monetary policymakers noted progress on inflation, although they noted that circumstances could justify keeping interest rates at the current level for longer than expected.
- Furthermore, the minutes did not provide direct clues about when a series of interest rate cuts could begin in 2024.
- Richmond Fed President Thomas Barkin on Wednesday expressed confidence that the economy is headed for a soft landing and said rate hikes remain on the table.
- The 10-year US government bond yield remains below 4.0%, which should serve as a boost for the dollar and limit the yield of the yellow metal.
- On Wednesday, the Institute for Supply Management (ISM) said the pace of decline in the US manufacturing sector slowed amid a modest rebound in output.
- The US ISM Manufacturing PMI improved to 47.4 last month from 46.7 in November, although it remained in contraction territory for the 14th consecutive month.
- The Department of Labor's Job Openings and Labor Turnover Survey (JOLTS) showed that job listings fell to 8.79 million in November, the lowest level since March 2021.
- Traders now look ahead to the US ADP report, which is expected to show that private sector employers added 115,000 jobs in December, up from 103,000 the previous month.
- However, markets will continue to monitor the official monthly employment data, popularly known as the non-farm payrolls (NFP) report on Friday.
Technical Analysis: Gold price remains below $2,050 and appears vulnerable to further decline
Technically, the previous day's breakout and acceptance below the resistance-turned-support at $2,050-$2,048 favors the bears. That said, the oscillators on the daily chart continue to remain in positive territory and warrant some caution. Therefore, it would be prudent to wait for selling below the low around the $2,030 area before positioning for any further depreciation moves.
The price of Gold could then accelerate the decline towards the 50-day SMA, currently around the $2,012-$2,011 area, en route to the psychological level of $2,000. A sustained break below the latter could change the short-term trend in favor of the bears.
On the other hand, the momentum above the $2,050 area seems to face strong resistance near $2,064-$2,065. The next important obstacle is located near the horizontal zone of $2,077, which if overcome decisively would allow the price of Gold to recover the level of $2,100.
Dollar Quote this week
The following table shows the percentage change of the US Dollar (USD) against major currencies this week.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.16% | 0.44% | 0.66% | 1.08% | 1.64% | 0.84% | 0.91% | |
| EUR | -1.01% | -0.55% | -0.36% | 0.08% | 0.49% | -0.17% | -0.16% | |
| GBP | -0.46% | 0.55% | 0.22% | 0.63% | 1.27% | 0.38% | 0.38% | |
| CAD | -0.66% | 0.33% | -0.03% | 0.41% | 0.98% | 0.16% | 0.19% | |
| AUD | -1.09% | -0.08% | -0.63% | -0.44% | 0.38% | -0.26% | -0.22% | |
| JPY | -1.65% | -0.44% | -1.12% | -0.79% | -0.40% | -0.65% | -0.79% | |
| NZD | -0.83% | 0.19% | -0.38% | -0.17% | 0.27% | 0.65% | 0.03% | |
| CHF | -0.85% | 0.17% | -0.37% | -0.17% | 0.25% | 0.78% | 0.01% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
