- The price of Gold remains under pressure, very close to the seven-month low it set on Tuesday.
- Dovish expectations from the Fed, high US bond yields and a bullish Dollar continue to weigh on the yellow metal.
- Investors are watching the US ADP report and the ISM Services PMI for short-term opportunities.
The price of Gold (XAU/USD) continues its difficulties in registering a significant recovery and trades with a slight negative bias for the eighth consecutive day on Wednesday. The precious metal remains under pressure in the early stages of the European session, very close to the almost seven-month low it hit the previous day. On the other hand, the Federal Reserve’s (Fed) bullish outlook, high US Treasury yields and strong bullish sentiment around the US Dollar (USD) support prospects for an extension of the decline. of the precious metal witnessed in the last two weeks.
Market participants seem convinced that the Fed will continue to tighten its monetary policy and keep interest rates higher for longer, which, in turn, could continue to act as a headwind for the price of Gold, which does not offer returns. Expectations were bolstered by Tuesday’s JOLTS U.S. Job Openings report, which showed U.S. job openings unexpectedly rose in August amid a rebound in demand for workers and pointed to a labor market still tense. This data adds to the increase in consumer spending and makes wage inflation topical again.
The persistence of high inflation could force the Fed to extend the rate hike cycle until 2024. These prospects, in turn, cause a sell-off in the US fixed income market, driving up government bond yields. 10 years to a new high of 16 years and supports the Dollar. That said, oversold conditions on the daily chart and prevailing risk appetite could limit losses for the safe-haven XAU/USD. The US ADP report and the ISM Services PMI are the data to expect in the near term, although attention remains focused on the US NFP report on Friday.
Daily summary of market drivers: Gold price continues to struggle to attract buyers
- The price of Gold remains under some selling pressure on Wednesday and weakens near a multi-month low on expectations for further tightening of monetary policy by the Federal Reserve.
- Recent comments from several Fed officials have supported the idea of a further adjustment of at least 25 basis points (bps) by the end of this year, in order to bring inflation back to the 2% target.
- The monthly JOLTS report reported an estimated supply of 9.61 million jobs in August, a significant increase from the upwardly revised figure of 8.92 million the previous month.
- This, along with persistent inflationary pressures, could force the Fed to maintain its hawkish stance and raise interest rates at its next policy meeting in November.
- Republican Kevin McCarthy, who has managed to keep the Government running until November 17, becomes the first speaker of the US House of Representatives to be removed from office.
- This fact highlights the internal struggles of the Republican Party and unleashes chaos ahead of the 2024 elections, which, together with the risks of looming recession, continues to weigh on investor sentiment.
- The risk-off environment, which tends to benefit traditional safe-haven assets, could hold traders back from opening new bearish positions around XAU/USD.
- Traders are keeping an eye on the ADP report, which is expected to show that U.S. private sector employers added 153,000 jobs in September, up from 177,000 the previous month.
- Also on the US economic agenda will be the ISM Services PMI, which is expected to drop from 54.5 to 53.6 in September and should give some boost to the XAU/USD.
Technical Analysis: Gold price looks set to refresh multi-month low and challenge $1,800
The Relative Strength Index (RSI) on the daily chart is showing extreme oversold conditions and it is prudent to wait for a short-term consolidation or a modest bounce before positioning for a further depreciating move. Meanwhile, the lack of firm buying interest confirms the negative near-term outlook for XAU/USD. Therefore, weakness below the $1,815 level, the multi-month low set on Tuesday, to challenge the round $1,800 level, seems a clear possibility.
A convincing break below this last level would expose the next relevant support near the $1,770-$1,760 area. On the other hand, any recovery attempt could face strong resistance and be capped near the $1,830-$1,832 horizontal zone. However, a short-covering move could trigger a larger recovery and take the yellow metal to the $1,850 barrier, en route to $1,858-$1,860.
Frequently asked questions about interest rates
What are interest rates?
Financial institutions charge interest rates on loans from borrowers and pay them as interest to savers and depositors. They are influenced by basic interest rates, which are set by central banks based on the evolution of the economy. Typically, central banks are mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below the target, the central bank can cut base interest rates, in order to stimulate credit and boost the economy. If inflation rises substantially above 2%, the central bank typically raises core lending rates to try to reduce inflation.
How do interest rates influence currencies?
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and, since Gold is priced in dollars, the price of Gold falls.
What is the federal funds rate?
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations about the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
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.
