Gold gains as geopolitical tensions improve safe-haven appeal, Fed minutes eyed – Crypto News – Crypto News
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XAU/USD reverses Fed Minutes inspired gains, $1,735 in focus XAU/USD reverses Fed Minutes inspired gains, $1,735 in focus

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Gold gains as geopolitical tensions improve safe-haven appeal, Fed minutes eyed – Crypto News

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  • Gold price extends upside amid increasing geopolitical uncertainty.
  • The US Dollar rebounds ahead of the publication of the FOMC minutes.
  • Fed’s Goolsbee said higher interest rates for a longer period can impact labor market conditions.

Gold price (XAU/USD) extends its winning spell to a fifth day on Wednesday amid the Red Sea crisis. Also, Chicago Federal Reserve (Fed) Bank President Austan Goolsbee identifies the consequences of keeping interest rates higher for longer on the United States labor market.

While most Fed policymakers say that resilient economic indicators such as Retail Sales and Employment data have bought time to discuss more on rate cuts as these could flare up price pressures again, Chicago Fed Bank President Austan Goolsbee warned that high rates for an extended period could impact the employment side of the Fed’s dual mandate. The Fed’s dual mandate is based on achieving full employment and inflation staying at around 2%. Goolsbee and other Fed policymakers said that inflation is on track to the central bank’s target of 2% despite the acceleration seen in January.

Meanwhile, investors await the publication of the Federal Open Market Committee (FOMC) minutes for January’s monetary policy meeting. The release will likely provide more cues about when the Fed will start reducing interest rates.

Daily Digest Market Movers: Gold price remains upbeat while US Dollar turns subdued

  • Gold price holds onto gains ahead of the FOMC minutes of the first monetary policy meeting of 2024, which will provide more insights about the timing of rate cuts.
  • The near-term outlook of Gold is bullish due to deepening Middle East tensions.
  • Persistent attacks from Iran-backed Houthis on commercial vessels in the Red Sea have escalated geopolitical tensions. Safe-haven assets tend to attract higher foreign inflows in times of geopolitical uncertainty.
  • Signs of the Fed’s willingness to keep interest rates higher for longer in the FOMC minutes could contribute further to the positive appeal for Gold. 
  • The opportunity cost of holding non-yielding assets, such as Gold, increases when the Fed maintains interest rates higher.
  • Meanwhile, the US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, turns subdued ahead of FOMC minutes.
  • The USD Index has come under pressure after the speech from Richmond Fed Bank President Thomas Barkin.
  • Thomas Barkin said “January data ‘made things harder’ but should not put too much weight on the month’s information given known seasonality issues.”
  • Barking added that the ease of hiring is not yet back to normal. The agenda to achieve a soft landing has a long way to go.
  • Market expectations for Fed rate cuts will guide further action in safe-haven assets.
  • As per the CME FedWatch tool, traders see a 54% chance for a 25 basis point (bp) rate cut in the June policy meeting.
  • This week, market participants will also focus on the preliminary S&P Global PMI data for February, which will be released on Thursday.
  • The Manufacturing PMI is forecasted to come out lower to 50.5 in February from 50.7 in January. The Services PMI, which represents sectors that account for two-thirds of the US economy, is expected to stand at 52.0, lower than the prior reading of 52.5.

Technical Analysis: Gold price aims to stabilize above $2,030

Gold price extends its winning streak for a fifth trading session but struggles to climb above its eight-day high of around $2,031 seen on Tuesday. On a daily time frame, the price is approaching the downward-sloping border of the Symmetrical Triangle chart pattern, which is plotted from December 28’s high at $2,088. The upward-sloping border of the aforementioned chart pattern is placed from December 13’s low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) has returned to the 40.00-60.00 range quickly after testing territory below 40.00, indicating a bullish reversal.

US Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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