Gold remains defensive amid modest USD uptick; downside seems cushioned
- Gold struggles to gain any meaningful traction on Monday amid mixed fundamental cues.
- Reduced December Fed rate cut bets benefit the USD and cap the non-yielding commodity.
- Economic concerns and a softer risk tone limit losses ahead of the delayed US macro data.
Gold (XAU/USD) attracts some sellers following a modest Asian session uptick to levels just above the $4,100 mark and remains on the defensive for the third straight day on Monday. Traders scaled back their expectations for another interest rate hike by the US Federal Reserve (Fed) after a slew of influential FOMC members showed little conviction for reducing borrowing costs. This, in turn, assists the US Dollar (USD) to gain some positive traction at the start of a new week and turns out to be a key factor acting as a headwind for the non-yielding yellow metal.
However, worries about the weakening economic momentum on the back of the longest-ever US government shutdown keep the door open for further policy easing by the US central bank. This, along with a softer risk tone, assists the safe-haven Gold to hold steady above a one-week low, around the $4,032 region, touched on Friday. Traders also seem reluctant and opt to wait for the FOMC meeting Minutes on Wednesday. Moreover, the delayed US Nonfarm Payrolls (NFP) report for October on Thursday would influence the USD and drive the commodity.
Daily Digest Market Movers: Gold traders seem non-committed as USD uptick offsets economic concerns
- A growing number of Federal Reserve officials adopted a cautious stance and showed reluctance toward additional monetary policy easing. In fact, Kansas City Fed President Jeffrey Schmid said on Friday that inflation is too hot and that there is no room to be complacent on inflation expectations.
- Monetary policy is modestly restrictive, which is where it should be, and should lean against demand growth, Schmid added further. The probability for a 25 basis-point rate cut in December fell below 50% last week, which weighed on the non-yielding Gold for the second straight day on Friday.
- The US Dollar firmed slightly at the start of a new week as investors braced for the release of delayed US macro data for more clarity on the Fed's interest rate outlook. This, in turn, is seen as another factor that keeps the XAU/USD bulls on the defensive through the Asian session on Monday.
- The closely-watched US Nonfarm Payrolls report for October will be published on Thursday, following the release of FOMC Minutes on Wednesday. This, in turn, will play a key role in influencing the near-term USD price dynamics and providing some meaningful impetus to the precious metal.
- Investors seem convinced that the US economic data would show some weakness and a slowdown in the economy on the back of a prolonged US government shutdown and prompt the Fed to ease policy further. This, along with a softer risk tone, helps limit the downside for the safe-haven commodity.
Gold needs to find acceptance below the 200-period SMA on H4 to back the case for further losses
On Friday, the XAU/USD pair showed some resilience below the 20-period Simple Moving Average (SMA) on the 4-hour chart. The lack of any subsequent move up, however, warrants some caution for bullish traders. Moreover, negative oscillators on the said chart make it prudent to wait for sustained strength and acceptance above the $4,100 mark before positioning for further gains towards the $4,140-4,145 resistance. The momentum could extend further and allow the Gold price to make a fresh attempt towards conquering the $4,200 round figure.
On the flip side, weakness below the 200-period SMA on the 4-hour chart, currently around the $4,059 area, could find some support near Friday's swing low, around the $4,032 region. This is followed by the $4,000 psychological mark, which, if broken decisively, could make the Gold price vulnerable to accelerate the fall towards the $3,931 intermediate support en route to the $3,900 mark and late October swing low, around the $3,886 region.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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