- Gold price hits a fresh two-month low amid bets that the Fed will keep rates higher for longer.
- The expectations were reaffirmed by the stronger-than-expected US CPI released on Tuesday.
- A softer risk tone lends support to the safe-haven XAU/USD and helps limit any further losses.
Gold price (XAU/USD) extends its sideways consolidative price move and remains depressed below the $2,000 psychological mark, or a two-month low heading into the European session on Monday. The stronger-than-expected US consumer inflation report released on Tuesday fueled speculations that the Federal Reserve (Fed) will wait until the June policy meeting before cutting interest rates. This remains supportive of elevated US Treasury bond yields and undermines the non-yielding yellow metal.
That said, a modest US Dollar (USD) pullback from its highest level since November 14 touched the previous day lends some support to the Gold price. Apart from this, a turnaround in the risk sentiment – as depicted by a sharp decline across the global equity markets – assists the safe-haven precious metal in defending the 100-day Simple Moving Average (SMA) support. That said, the aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD remains to the downside.
Daily Digest Market Movers: Gold price remains vulnerable amid hawkish Fed expectations
- The US inflation data released on Tuesday tempered prospects of an early interest rate cut by the Federal Reserve and continues to undermine the non-yielding Gold price.
- The Bureau of Labor Statistics reported that the headline US CPI rose by 0.3% in January and softened to the 3.1% YoY rate from the 3.4% in December, beating expectations.
- Furthermore, the Core CPI, which excludes volatile food and energy prices, also surpassed consensus estimates and matched December’s increase of 3.9%.
- Against the backdrop of the recent stronger US macro data, the still-too-high consumer inflation gives the Fed little reason to rush on cut interest rates.
- The CME Group’s FedWatch Tool indicates just over a 35% chance of a rate cut in April and that the Fed will likely not cut rates until the June policy meeting.
- The expectations lift the yield on the benchmark 10-year US government bond to its highest level since December 1 and act as a tailwind for the US Dollar.
- Renewed concerns over higher for longer interest rates temper investors’ appetite for riskier assets and assist the XAU/USD to defend the 100-day SMA support.
Technical Analysis: Gold price bears retain control, take a brief pause near 100-day SMA support
From a technical perspective, some follow-through selling below the $1,990-1,988 region (100-day SMA) might expose the very important 200-day SMA support, currently pegged near the $1,965 area. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move. The Gold price might then fall to an intermediate support near the $1,952-1,950 zone before eventually dropping to the November 2023 low, around the $1,932-1,931 region.
On the flip side, any attempted recovery beyond the $2,000 mark now seems to confront stiff resistance near the $2,011-2,012 area. That said, some follow-through buying, leading to a subsequent strength beyond the $2,015 level, might trigger a short-covering rally and lift the Gold price to the 50-day SMA, currently around the $2,030 region. The latter should act as a key pivotal point, which if cleared decisively should pave the way for additional gains beyond the $2,044-2,045 intermediate hurdle, towards the $2,065 supply zone.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | -0.05% | -0.03% | -0.10% | -0.12% | -0.20% | -0.10% | |
| EUR | 0.02% | -0.03% | -0.02% | -0.08% | -0.11% | -0.18% | -0.08% | |
| GBP | 0.04% | 0.03% | 0.01% | -0.07% | -0.07% | -0.15% | -0.05% | |
| CAD | 0.03% | 0.01% | -0.01% | -0.06% | -0.08% | -0.17% | -0.07% | |
| AUD | 0.11% | 0.10% | 0.07% | 0.09% | -0.01% | -0.08% | 0.01% | |
| JPY | 0.12% | 0.10% | 0.08% | 0.11% | -0.04% | -0.08% | 0.02% | |
| NZD | 0.21% | 0.18% | 0.15% | 0.17% | 0.11% | 0.08% | 0.12% | |
| CHF | 0.09% | 0.08% | 0.05% | 0.07% | -0.01% | -0.02% | -0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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USD/CHF finds support at 0.9010, with buyers lifting pair to 0.9057 in late North American session.
‘Golden cross’ formation of 50-day moving average crossing above 200-day moving average opens door for bullish resumption.
Sellers must push prices below 0.9000 mark and reclaim latest cycle low at 0.8887 to maintain control.
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