XAU/USD downside is slowing as price corrects from fresh lows

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Gold retreats amid cautious mood ahead of FOMC minutes, factory data – Crypto News

Published

3 years ago

January 3, 2024

Dripp

Gold price pares intraday gains as bets in favour of early rate cuts by the Fed drop slightly.
Action in the FX domain could turn volatile as FOMC Minutes and Manufacturing PMI are due for release.
The US Dollar Index recovers as upbeat sentiment-based rally pauses.

Gold price (XAU/USD) surrenders gains generated in the early Asian session amid caution ahead of the Federal Open Market Committee (FOMC) minutes and crucial data from the United States, namely the Institute for Supply Management (ISM) Manufacturing PMI for December and JOLTS Job Openings data for November.

The precious metal faces selling pressure as investors reconsider their bets in favour of a rate cut by the Federal Reserve (Fed) in March. An absence of significant discussions about rate cuts by Fed policymakers in the FOMC minutes will dampen the near-term appeal for Gold and support the US Dollar (USD) and Treasury yields.

On the economic data front, the ISM PMI is expected to signal that the US manufacturing sector remained in a contraction trajectory for the 14th month in a row. Meanwhile, higher job postings by US employers will indicate a steady labor demand.

Daily Digest Market Movers: Gold price surrenders gains ahead of FOMC minutes

Gold price surrenders the majority of gains generated on early Wednesday as prospects of early rate cuts by the Federal Reserve have trimmed slightly ahead of the publication of the FOMC minutes.
As per the CME Fedwatch tool, chances of an interest rate cut by 25 basis points (bps) in March have dropped to 67% from 72%.
The FOMC minutes will provide a detailed explanation about the decision to maintain rates on hold in December’s monetary policy for the third time in a row.
Apart from that, the outlook on interest rates and the underlying inflation for 2024 and 2025 will be keenly watched.
Less discussions about rate cuts among policymakers may dampen the near-term appeal for Gold and demand for safe-haven assets will heat up.
Fed Chair Jerome Powell, in its monetary policy statement, said rate cuts will be a topic of discussion going forward. Cues favouring a delay in rate cuts may stem a dismal market mood.
In addition to the FOMC minutes, investors will keep an eye on the ISM Manufacturing PMI for December, which will be published at 15:00 GMT.
The Manufacturing PMI is seen at 47.1, below the 50.0 threshold for the 14th straight month, but higher than the former reading of 46.7. A figure below 50.0 signals contraction in the manufacturing sector.
Investors will also focus on the fresh orders for the manufacturing sector, which will provide the outlook for 2024.
Apart from that, the US Bureau of Labor Statistics will publish the JOLTS Job openings data for November. Estimates indicate that job postings were higher at 8.85M against the former reading of 8.733M.
Meanwhile, a sharp recovery in the US Treasury yields has capped the upside in Gold prices. The 10-year US Treasury yields have recovered to nearly 4.0% as investors are realizing that robust strength in the United States economy in 2024 could delay rate cuts.
The US Dollar Index (DXY) clings to gains near 102.20 as investors are uncertain in a data-packed week.
After the ISM factory data, investors will look for the crucial labour market data for December. On Thursday, the Automatic Data Processing (ADP) Employment data will provide fresh cues about labour demand.
As per estimates, private US employers added 115K job-seekers in December against 103K payrolls created in November.

Technical Analysis: Gold price falls to near $2,060

Gold price falls back slightly below the crucial support of $2,060 after failing to sustain above the $2,080 resistance. The precious metal trades at make or a break ahead of crucial US events. A breakdown below Tuesday’s low of $2,056 could unveil fresh downside for the Gold price towards $2,045. Upward-sloping 20-day and 50-day Exponential Moving Averages (EMAs) indicate that the overall trend is still bullish.

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.