Gold retreats from weekly top as USD rebounds slightly following the post-FOMC slump
- Gold struggles to capitalize on modest Asian session gains to a fresh weekly top.
- A positive risk tone and a modest USD bounce exert some pressure on XAU/USD.
- Dovish Fed expectations should cap the USD and lend support to the commodity.
Gold (XAU/USD) retreats following a modest Asian session uptick to the $4,247 area, or a fresh weekly high, and for now, seems to have snapped a two-day winning streak. A generally positive risk tone, along with a modest US Dollar (USD) bounce from its lowest level since October 24, turns out to be a key factor undermining demand for the safe-haven precious metal. That said, the US Federal Reserve's (Fed) hawkish outlook might keep a lid on the attempted USD recovery and help limit the downside for the non-yielding yellow metal.
Apart from this, persistent geopolitical uncertainties stemming from the protracted Russia-Ukraine war assist the Gold to hold above the $4,200 round figure. This, along with the recent range-bound price action witnessed over the past two weeks or so, warrants some caution before placing aggressive bearish bets around the XAU/USD pair and positioning for any meaningful depreciating move. Traders now look to the US Weekly Initial Jobless Claims and Trade Balance data for some impetus later during the North American session.
Daily Digest Market Movers: Gold bulls turn cautious amid uncertainty over pace of Fed easing next year
- In a widely expected move, the US Federal Reserve lowered borrowing costs by 25 basis points at the end of a two-day policy meeting on Wednesday and projected just one more rate cut in 2026. Investors, however, remained hopeful about two more rate cuts in 2026 in the wake of Fed Chair Jerome Powell's dovish remarks.
- Powell told reporters during the post-meeting press conference that the US labor market has significant downside risks and the US central bank does not want its policy to push down on job creation. This, in turn, dragged the US Dollar to its lowest level since October 24 and pushed the Gold to a fresh weekly high on Thursday.
- Powell, however, declined to offer guidance on the timing of the next rate cut and signaled a tougher road ahead for further reductions. Moreover, two hawkish dissents were opposing even Wednesday's move, fueling uncertainty about the pace of Fed policy easing next year and acting as a headwind for the non-yielding yellow metal.
- Furthermore, a positive risk tone turns out to be another factor driving flows away from the safe-haven precious metal. That said, slow progress in the Russia-Ukraine ceasefire talks keep geopolitical risks in play and might hold back traders from placing aggressive bearish bets around the commodity and limit deeper losses.
- Ukrainian drones hit and disabled a tanker involved in trading Russian oil in the Black Sea. This marks the third sea drone strike in two weeks on vessels that are part of Russia’s so-called “shadow fleet”. Meanwhile, President Vladimir Putin had said that Russia would seize Ukraine’s Donbas region by military or other means.
- The mixed fundamental backdrop warrants some caution for the XAU/USD bears. Market participants now look to Thursday's US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and Trade Balance data. This, along with USD price dynamics, should provide a fresh trading impetus to the commodity.
Gold struggles to make it through the $4,245-4,250 hurdle; remains confined in a two-week-old trading range
The intraday pullback from the vicinity of a resistance marked by the top boundary of a two-week-old trading range warrants some caution for the XAU/USD bulls. However, positive oscillators on the daily chart suggest that any further decline below the $4,200 mark could be seen as a buying opportunity and find decent support near the $4,170-4,165 region. A convincing break below the latter, however, might expose the $4,125-4,120 confluence – comprising the 200-period Exponential Moving Average (EMA) on the 4-hour chart and an ascending trend line extending from the late October swing low.
On the flip side, bulls need to wait for sustained strength and acceptance above the $4,245-4,250 supply zone. The subsequent move up has the potential to lift the Gold price to the $4,277-4,278 intermediate hurdle en route to the $4,300 mark. Some follow-through buying will be seen as a key trigger for the XAU/USD bulls and pave the way for additional near-term gains.
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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