Gold regains positive momentum amid dovish Fed outlook and weaker USD
- Gold catches fresh bids as rising Fed rate cut bets continue to undermine the USD.
- A positive risk tone does little to hinder the XAU/USD pair’s modest intraday uptick.
- Traders now look forward to key US macro releases for some meaningful impetus.
Gold (XAU/USD) builds on the previous day's late rebound from the $4,164-4,163 area and gains some follow-through positive traction during the Asian session on Wednesday. The commodity moves back closer to its highest level since October 21, touched on Monday, and continues to draw support from prospects for lower US interest rates. Traders now seem convinced that the US Federal Reserve (Fed) will lower borrowing costs again next week. Moreover, speculations about a dovish successor to Fed Chair Jerome Powell keep the US Dollar (USD) depressed near its lowest level in over two weeks and benefit the non-yielding yellow metal.
Adding to this, persistent geopolitical uncertainties stemming from the protracted Russia-Ukraine war and the risk of a further escalation of conflict act as a tailwind for the safe-haven Gold. The supporting factors offset a generally positive tone around the equity markets and favor the XAU/USD bulls. Investors, however, might opt to wait for this week's important US macro data before positioning for further gains. Wednesday's US economic docket features the release of the ADP report on private-sector employment and the ISM Services PMI, though the focus remains on the Personal Consumption Expenditure (PCE) Price Index on Friday.
Daily Digest Market Movers: Gold continues to draw support from dovish Fed expectations, weaker USD
- Recent US macro data pointed to a gradual cooling of the US economy. Moreover, dovish signals from Federal Reserve officials bolstered expectations for a 25-basis-point rate cut at the upcoming FOMC meeting next week.
- According to the CME Group's FedWatch Tool, traders are pricing in a nearly 90% probability of the move, which keeps the US Dollar depressed through the Asian session on Wednesday and supports the non-yielding Gold.
- Reports suggest that White House National Economic Council Director Kevin Hassett is seen as the frontrunner to become the next Fed Chair. Hassett is expected to enact US President Donald Trump's calls for lower rates.
- Russian President Vladimir Putin and Trump’s envoys Steve Witkoff failed to reach a compromise on a possible peace deal in Ukraine. Adding to this, Putin issued threats that Russia was ready for a war with Europe.
- This keeps geopolitical risks in play and turns out to be another factor acting as a tailwind for the safe-haven precious metal. The XAU/USD bulls, however, might opt to wait for US macro data before placing fresh bets.
- The US ADP report on private-sector employment and the US ISM Services PMI will be published later today. The focus, however, will remain glued to the Personal Consumption Expenditure (PCE) Price Index on Friday.
- The latter would provide more cues about the Fed's rate-cut path, which, in turn, will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the commodity.
Gold needs to find acceptance above $4,245-4,250 to back the case for additional gains
The overnight goodish rebound from the vicinity of the $4,155-4,150 support and the subsequent move up favor the XAU/USD bulls. However, it will still be prudent to wait for acceptance above the $4,245-4,250 strong barrier before positioning for any further appreciating move. The commodity might then surpass the weekly swing high, around the $4,264-4,265 region and the $4,277-4,278 resistance, toward reclaiming the $4,300 round figure.
On the flip side, weakness below the $4,200 mark might continue to attract buyers and find decent support ahead of the $4,150 level. The latter should act as a key pivotal point, which, if broken, could drag the Gold price to the $4,100 mark en route to the $4,075-4,073 confluence support – comprising the 200-period Exponential Moving Average (EMA) on the 4-hour chart and an ascending trend-line extending from late October.
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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