Gold holds steady around $4,070 area as traders await FOMC minutes for rate-cut cues
- Gold draws support from reviving safe-haven demand and subdued USD price action.
- Reduced Fed rate cut bets act as a tailwind for the buck and cap the precious metal.
- Traders also seem reluctant and now looking to the FOMC minutes for a fresh impetus.
Gold (XAU/USD) trades with a mild positive bias for the second straight day on Wednesday and looks to build on the previous day's bounce from levels just below the $4,000 psychological mark, or a one-and-a-half-week low. The overnight slump on Wall Street pointed to a fragile risk sentiment amid concerns about the US economy, which keeps the US Dollar (USD) bulls on the defensive through the Asian session. This, along with geopolitical risks stemming from the protracted Russia-Ukraine war, turns out to be a key factor acting as a tailwind for the safe-haven precious metal.
Any meaningful USD depreciation, however, seems elusive on the back of reduced bets for another interest rate cut by the US Federal Reserve (Fed) in December. This, in turn, might cap the upside for the non-yielding Gold. Traders might also opt to wait for more cues about the Fed's rate-cut path before positioning for the next leg of a directional move for the XAU/USD pair. Hence, the market focus will remain on the release of FOMC minutes, due later this Wednesday, and the delayed US Nonfarm Payrolls (NFP) report on Thursday amid signs of a softening labor market.
Daily Digest Market Movers: Gold bulls seem non-committed amid reduced December Fed rate cut bets
- Investors remain worried about the weakening economic momentum on the back of the longest-ever US government shutdown, which continues to weigh on investors' sentiment and supports the safe-haven Gold through the Asian session on Wednesday.
- Ukraine’s military on Tuesday said that it had struck military targets inside Russia using US-supplied ATACMS missiles. Amid the ongoing conflict, Ukrainian President Volodymyr Zelenskiy will travel to Turkey to revive stalled peace talks with Russia.
- A US special envoy, Steve Witkoff, is expected to join the discussions. However, Kremlin spokesman Dmitry Peskov said that no Russian delegates would attend the talks. This keeps geopolitical risks in play and further offers support to the precious metal.
- The US Dollar struggles to attract any meaningful buyers, though it holds steady near a one-week high amid less dovish Federal Reserve expectations. In fact, several Fed officials recently signaled caution on further monetary policy easing next month.
- Fed Vice Chair Philip Jefferson said earlier this week that the central bank needs to proceed slowly. However, Fed Governor Christopher Waller continued to build the case for further rate cuts amid concerns over the labor market and the slowdown in hiring.
- The US Labor Department reported that the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased to 1.957 million during the week ended October 18. This suggests an elevated unemployment rate in October.
- Hence, the delayed release of the US Nonfarm Payrolls report for September, due on Thursday, will grab all the attention. This, along with the FOMC minutes, due later today, will offer cues about the Fed's rate-cut path and influence the USD and the XAU/USD pair.
Gold struggles to capitalize on modest uptick; 200-period EMA on H4 holds the key for bulls
The commodity on Tuesday found decent support and bounced off the 200-period Exponential Moving Average (EMA) on the 4-hour chart. However, mixed oscillators on the said chart warrant caution before positioning for a further appreciating move. Meanwhile, the $4,100 round figure is likely to act as an immediate hurdle, which, if cleared, might trigger a short-covering rally and lift the Gold price to the $4,152-4,155 intermediate hurdle en route to the $4,200 mark.
On the flip side, the $4,037-4,036 area could protect the immediate downside ahead of the 200-period EMA on the 4-hour chart, currently pegged just ahead of the $4,000 mark. A convincing break below the latter could make the Gold price vulnerable to accelerate the fall towards the $3,931 support before eventually dropping to the $3,900 mark en route to the 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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