- Gold drifts lower at the start of a new week as the risk-on mood undermines demand for safe-haven assets.
- Mixed signals from Fed officials drag the USD away from a multi-month top and support the commodity.
- Geopolitical risks further benefit the XAU/USD pair as traders keenly await this week's US macro data.
Gold (XAU/USD) recovers slightly from the daily low touched during the early part of the European session and trades with a mild negative bias, just above the $4,060 level, down less than 0.15% for the day. Mixed signals from US Federal Reserve (Fed) officials keep the door open for another interest rate cut in December and prompt some US Dollar (USD) profit-taking after the recent rise to its highest level since late May. This turns out to be a key factor lending some support to the non-yielding yellow metal.
Apart from this, geopolitical risks stemming from the intensifying Russia-Ukraine war and fresh conflicts in the Middle East further seem to underpin the safe-haven Gold. Traders, however, might refrain from placing aggressive bets and opt to wait for this week's key US macro releases – the Q3 GDP print and the Personal Consumption Expenditure (PCE) Price Index. Moreover, the range-bound price action witnessed over the past week or so warrants caution before positioning for a firm near-term direction.
Daily Digest Market Movers: Gold draws support from Fed rate cut bets, geopolitical risks
- New York Federal Reserve President John Williams described the current policy as modestly restrictive and told reporters on Friday that he sees room for the central bank to lower rates in the near term. Traders were quick to react and are now pricing in around a 67% chance that the Fed will lower borrowing costs in December.
- However, other Fed officials maintained a hawkish stance, with Dallas Fed President Lorie Logan calling for leaving the policy rate on hold for the time being. This assists the US Dollar in preserving its recent gains to the highest level since late May and exerts some downward pressure on the Gold during the Asian session on Monday.
- Meanwhile, the renewed optimism that the US central bank will cut interest rates again in December boosts investors' appetite for riskier assets. This allows most Asian stocks to rise on Monday and recover some of the recent losses, which, in turn, is seen as another factor that undermines demand for the safe-haven precious metal.
- Ukraine launched a significant drone attack on a heat and power station in Russia’s Moscow region. Russia, on the other hand, said that it had captured three more villages in eastern Ukraine. Meanwhile, US President Donald Trump has given Ukraine until November 27 to approve a 28-point peace plan to end the nearly four-year war.
- Ukraine is seeking changes to the proposal that accepts some of Russia's hardline demands and makes painful concessions in order to end the invasion. This keeps geopolitical risks in play and might continue to offer some support to the precious metal, warranting some caution before positioning for any further depreciating move.
- Traders now look forward to a rather busy US economic docket this week, featuring the delayed release of the Producer Price Index (PPI), Retail Sales, and the Conference Board's Consumer Confidence Index on Tuesday. This will be followed by the preliminary Q3 GDP and the Personal Consumption Expenditure (PCE) Price Index on Wednesday.
- The latter would offer more cues about the Fed's future rate-cut path, which, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the non-yielding yellow metal.
Gold needs to weaken below the $4,030 confluence support to back the case for deeper losses
From a technical perspective, the XAU/USD pair, so far, has managed to defend an upward-sloping trend-line extending from late October. The said support is currently pegged near the $4,030 region and now coincides with the 200-period Exponential Moving Average (EMA) on the 4-hour chart. This, in turn, should act as a key pivotal point, which, if broken decisively, might turn the Gold price vulnerable to weaken further below the $4,000 psychological mark and test last week's swing low, around the $3,968-3,967 area. The downward trajectory could extend further the $3,931 support en route to the $3,900 mark and late October swing low, around the $3,886 region.
On the flip side, the $4,080 supply zone now seems to act as an immediate hurdle ahead of the $4,100 mark. A sustained move and acceptance above the latter could lift the Gold price to the next relevant hurdle near the $4,152-4,155 region. The momentum could extend further and allow the XAU/USD pair to climb further towards reclaiming the $4,200 round figure.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
