Gold price fails to get a decisive move amid uncertainty over Fed rate-cut timing

Fonte Fxstreet
  • Gold price trades sideways as no Fed policymakers provide a significant timeline for rate cuts.
  • Fed Collins sees rate cuts later this year only if price pressures remain consistent with forecasts.
  • The US Dollar trades in a tight range ahead of weekly Initial Jobless Claims data.

Gold price (XAU/USD) grinds in a tight range during Thursday’s European session as uncertainty over the timing of interest rate cuts by the Federal Reserve (Fed) deepens. In the monetary policy speeches this week, none of the Fed policymakers have provided any concrete timeline for rate cuts. 

The opportunity cost of holding Gold, a non-yielding asset, rises when the Fed holds interest rates high for a longer period. Fed policymakers are considering rate cuts at this stage as “premature”. The Fed needs more good inflation data to gain confidence that price pressures will sustainably return to the 2% target. Also, inflation pressures could flare up again if the Fed goes aggressively for rate cuts.

The market sentiment is quiet as the United States economic calendar has nothing much to offer. However, next week, the US inflation data for January will be the key trigger that will provide a fresh outlook on interest rates. The Gold price could come under pressure if the inflation data turns out persistently higher than expectations.

Daily Digest Market Movers: Gold price await fresh economic trigger

  • Gold price remains broadly sideways in the European session on Thursday.
  • The broader appeal for the Gold price is uncertain as Federal Reserve policymakers continue to maintain the hawkish rhetoric narrative on interest rates.
  • Like other Fed policymakers, Boston Federal Reserve Bank President Susan Collins said on Wednesday that the central bank would be able to lower interest rates only after gaining greater confidence that inflation will sustainably return to the 2% target.
  • Susan Collins said the central bank will reduce interest rates at some point later this year if economic data evolves consistently with their goals. 
  • Minneapolis Federal Reserve Bank President Neel Kashkari said officials are looking for good inflation data for months that could provide confidence of achieving price stability. Kashkari replied two to three rate cuts seem appropriate when asked about the number of rate cuts this year.
  • The newest member of the Fed’s Monetary Policy Committee (MPC), Adriana Kugler said every policy meeting from March has the potential to offer rate cuts given the flow of economic data, in her first policy speech since recruited in September.
  • Contrary to Kugler’s view, Fed Chair Jerome Powell said rate cuts are unlikely in March in its monetary policy statement on January 31.
  • While Fed policymakers are holding themselves from offering meaningful cues about timing of rate cuts, investors have stepped to the sidelines and are awaiting a fresh economic trigger.
  • The US Dollar Index (DXY) trades in a tight range around 104.00. In today’s session, the United States economic calendar has weekly Initial Jobless Claims (IJC) to offer further action.

Technical Analysis: Gold price dips below $2,040

Gold price drops gradually from a three-day high of $2,045. The precious metal is broadly sideways trading in a narrow range of around $2,030. The overlapping structure between the Gold price and the 20-day Exponential Moving Average (EMA) indicates that volatility has squeezed significantly.  Also, the Gold price is forming a Symmetrical Triangle chart pattern on the daily time frame that demonstrates a sharp contraction in volatility. The 50-day EMA at $2,023 continues to provide a cushion to the Gold price bulls.

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.

Isenção de responsabilidade: Apenas para fins informativos. O desempenho passado não é indicativo de resultados futuros.
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Autor  FXStreet
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