Gold drifts lower as traders further scale back expectations for March Fed rate cut

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  • Gold price meets with a fresh supply on Monday and snaps a two-day winning streak.
  • Reduced bets that the Fed will cut rates in March act as a headwind for the XAU/USD.
  • Retreating US bond yields, softer USD and geopolitical risk could limit deeper losses.

Gold price (XAU/USD) kicks off the new week on a weaker note and maintains its offered tone through the early European session, snapping a two-day winning streak. Investors continue to scale back their expectations for a more aggressive policy easing by the Federal Reserve (Fed) in the wake of a still-resilient US economy. Adding to this, the recent hawkish comments from a slew of influential Federal Reserve (Fed) policymakers lowered market expectations of an early rate cut. This, in turn, is seen as a key factor driving flows away from the non-yielding yellow metal. 

Apart from this, a generally positive tone around the equity markets further contributes to the offered tone surrounding the Gold price. That said, the risk of a further escalation of geopolitical tensions in the Middle East, along with persistent worries about slowing economic growth in China, could lend some support to the safe-haven XAU/USD. Meanwhile, the flight to safety exerts some pressure on the US Treasury bond yields, which keeps the US Dollar (USD) bulls on the defensive, which should also help limit any further losses for the precious metal and warrants caution for bearish traders.

Daily Digest Market Movers: Gold price is weighed down by reduced bets for an early Fed rate cut

  • Reduced bets for an early interest rate cut by the Federal Reserve, along with a generally positive risk tone, prompt fresh selling around the Gold price on the first day of a new week.
  • The better-than-expected US macro data released last week, along with the recent comments by Fed officials, force investors to further trim their bets for an early interest rate cut.
  • The University of Michigan’s preliminary survey showed that the US Consumer Sentiment Index rose from 69.7 in December to 78.8 this month, or the highest level since July 2021.
  • According to CME Group’s Fed Watch Tool, traders are now pricing in a less than 50% chance of a Fed rate cut move at the March policy meeting, down from over 70% last week.
  • Chicago Fed President Austan Goolsbee said on Friday that the central bank needs more inflation data in hand before any decision could be made to cut interest rates.
  • Separately, San Francisco Fed President Mary Daly said there is still a lot of work left to do on inflation and it is premature to think that rate cuts are around the corner.
  • The US launched an attack on a Houthi anti-ship missile on Sunday, its seventh round of strikes since the Iran-backed rebel group began targeting merchant vessels in the Red Sea.
  • There have been at least 140 attacks on US bases since October 17 and seven in the past week, including the heavy military strikes on Ain al-Assad base in Iraq, which injured US and Iraqi soldiers.
  • Iran has vowed retaliation for a strike that killed five senior military officials in Damascus yesterday, an attack it blamed on Israel, which has neither confirmed nor denied involvement.
  • Israeli forces and Hamas fighters clashed in several places on Sunday, while Israeli planes resumed heavy bombing on Khan Younis in the southern Gaza Strip.
  • Israeli Prime Minister Benjamin Netanyahu appeared to rule out the two-state solution to the conflict and said that Israel must retain security control over all the territory west of Jordan.
  • The People’s Bank of China (PBoC) decided earlier this Monday to leave the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.45% and 4.20%, respectively.

Technical Analysis: Gold price could retest monthly low once $2,020 support is broken decisively

From a technical perspective, some follow-through below the $2,022-2,020 immediate support will expose the $2,000 psychological mark, or over a one-month low touched last week. The latter should act as a key pivotal point, which if broken decisively could make the Gold price vulnerable. The subsequent downfall has the potential to drag the XAU/USD further towards the $1,988 intermediate support en route to the 100-day Simple Moving Average (SMA), currently around the $1,972 area and the 200-day SMA, near the $1,964-1,963 region.

On the flip side, Friday’s swing high, around the $2,040-2,042 supply zone, might continue to act as an immediate strong barrier. A sustained strength beyond could trigger a short-covering rally and lift the XAU/USD towards the $2,077 area. The upward trajectory could extend further and allow bulls to reclaim the $2,100 round-figure mark.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the .

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.12% -0.14% 0.02% -0.04% -0.17% -0.11% -0.07%
EUR 0.12%   -0.01% 0.14% 0.08% -0.05% 0.01% 0.06%
GBP 0.14% 0.01%   0.14% 0.10% -0.03% 0.03% 0.07%
CAD -0.01% -0.12% -0.14%   -0.04% -0.17% -0.10% -0.07%
AUD 0.04% -0.08% -0.10% 0.04%   -0.12% -0.06% -0.01%
JPY 0.16% 0.04% 0.06% 0.15% 0.14%   0.07% 0.10%
NZD 0.10% -0.02% -0.04% 0.11% 0.06% -0.06%   0.04%
CHF 0.06% -0.06% -0.07% 0.06% 0.02% -0.11% -0.05%  

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).

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.



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