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    Gold price oscillates ahead of US Q4 GDP data

    Source Fxstreet
    January 25, 2024 10:31
    • Gold price range-trades ahead of the first estimate for US Q4 GDP data.
    • The US Dollar Index consolidates as investors look for fresh guidance on interest rates.
    • US economic resilience continues to strengthen the appeal for restrictive interest rates – a negative for Gold.

    Gold price (XAU/USD) remains inside the woods as investors await the United States Gross Domestic Product (GDP) release for Q4, which will provide fresh information on which to base an outlook for interest rates. Investors are watching as upbeat GDP data could weaken the consensus argument advocating early interest rate-cuts by the Federal Reserve (Fed).

    Stronger US PMI data, released by S&P Global, is reflecting resilience in the US economy, allowing Fed policymakers to designate rate-cuts from March as “premature”. The US economy is resilient amid upbeat labor market conditions and robust consumer spending. In addition to that, widely anticipated interest rate-cuts by the Fed this year has set a positive undertone for the economic outlook. 

    Apart from the Q4 GDP data, market participants will keenly focus on the core Personal Consumption Expenditure price index (PCE) data for December, which will be published on Friday. The underlying core inflation is preferred by Fed policymakers while deciding on the interest rate policy.

    Daily Digest Market Movers: Gold price trades sideways ahead of US data

    • Gold price turns sideways to near $2,015 after a sharp fall, ahead of the United States Q4 GDP data, which will be published at 13:30 GMT.
    • Investors have projected that the US economy expanded at a slower pace of 2.0% against robust growth of 4.9% recorded in the third quarter of 2023.
    • Moderate economic expansion would ease the stubborn inflation outlook and will discourage Federal Reserve policymakers from advocating a restrictive interest rate stance. 
    • As per the CME Fedwatch tool, the chances in favour of an interest rate cut by 25 basis-points (bps) in March have dropped to 42.4%.
    • Bets supporting a decline in interest rates dampened due to strong recovery in the US PMIs in December. The Manufacturing PMI landed above the 50.0 threshold at 50.3, stronger than expectations and the former reading of 47.9. 
    • The Services PMI that represents the service sector, which accounts for two-thirds of the economy, rose to 52.9 from the prior reading of 51.4 and expectations of 51.0.
    • A sharp recovery in the US economic activity indicates that the economy has started 2024 on a firm-footing and has improved the outlook for the entire year. 
    • Business confidence was uplifted by hopes of easing inflation, cost-of-living crises and a reduction in borrowing rates.
    • Strong set of PMI numbers empowered the US Dollar to bounce back strongly. The appeal for the US Dollar could strengthen further if the US GDP data turns out stronger-than-anticipated.
    • The US Dollar Index (DXY) has corrected gradually to near 103.20 and is expected to remain subdued ahead.     
    • After the US Q4 GDP data, market participants will shift their focus to the core underlying inflation data for December, which will be released on Friday.
    • A stubborn core PCE price index data would strengthen the case for a restrictive monetary policy stance.
    • Next week, the Fed is widely anticipated to maintain the status-quo but a stubborn inflation report would allow them to endorse higher interest rates at least until first-half of 2024 ends.

    Technical Analysis: Gold price maintains auction abive $2,000

    Gold price trades inside Wednesday’s trading range as investors bide their time ahead of the US Q4 GDP data. The precious metal consolidates above $2,016 but remains below the 20-day Exponential Moving Average (EMA), which indicates that the near-term demand is downbeat. The 14-period Relative Strength Index (RSI) remains inside the 40.00-60.00 range, which shows less chances of a sharp move. A downside move could appear if the yellow metal fails to sustain above the psychological support of $2,000.

    Gold FAQs

    Why do people invest in Gold?

    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.

    Who buys the most Gold?

    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.

    How is Gold correlated with other assets?

    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.

    What does the price of Gold depend on?

    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.

    Disclaimer: For information purposes only. Past performance is not indicative of future results.
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    Source  Fxstreet
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    Source  Fxstreet
    Gold price (XAU/USD) trades with a positive bias for the fifth successive day on Wednesday and is currently placed around the $2,030 level, or a one-week high touched the previous day.
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    Source  Fxstreet
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