Gold remains depressed amid stronger USD, holds above 50-day SMA ahead of FOMC

  • Gold price extends the overnight pullback from a two-week high amid a modest USD strength.
  • Geopolitical risks and China’s economic woes could lend support to the safe-haven XAU/USD.
  • Traders might also prefer to wait on the sidelines ahead of the crucial FOMC policy decision.

Gold price (XAU/USD) attracts some sellers during the Asian session on Wednesday and moves further away from a two-week top, around the $2,048-2,049 area touched the previous day. The JOLTS report published on Tuesday suggested that the labor market is too strong for the Federal Reserve (Fed) to start cutting interest rates in the first quarter. This helps revive demand for the US Dollar (USD) and lifts it back closer to its highest level since December 13 touched earlier this week, which, in turn, is seen as a key factor exerting pressure on the precious metal.

That said, declining US Treasury bond yields might keep a lid on any further gains for the USD as traders look for more clarity about the Fed’s rate-cut path. Hence, the focus will remain glued to the outcome of the highly-anticipated FOMC monetary policy meeting, scheduled to be announced later today, which will determine the next leg of a directional move for the non-yielding Gold price. In the meantime, concerns about geopolitical risks stemming from the Middle East conflict and China’s economic woes should limit the downside for the safe-haven XAU/USD

  • The US Dollar regains positive traction amid diminishing odds for a more aggressive policy easing by the Federal Reserve and drags the Gold price away from a two-week high touched the previous day.
  • The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics showed that US job openings unexpectedly increased to 9.02 million in December.
  • The Conference Board’s US Consumer Confidence Index improved for the third consecutive month and jumped to its highest level since December 2021, to 114.8 in January from the 108.0 previous.
  • Adding to this, the International Monetary Fund upgraded its forecast for the US economic growth to 2.1% for 2024, versus the 1.5% rise expected in October, and then ease to 1.7% in 2025.
  • This suggested that the US economy is still in good shape for the Fed to start cutting interest rates in the first quarter, which, in turn, acts as a tailwind for the buck and weighs on the metal.
  • The yield on the benchmark 10-year US government bond languishes near the 4.0% threshold, which, along with geopolitical risks and China’s economic woes, lend support to the XAU/USD.
  • China’s National Bureau of Statistics reported that the official Manufacturing PMI improved slightly to 49.2 in January, though remained in contraction territory for the fourth straight month.
  • This points to a weak domestic recovery and poor external demand, though, to a larger extent, was offset by a further rise in the Non-Manufacturing PMI to 50.7 in January from the 50.4 previous.
  • Investors now look to the highly-anticipated FOMC policy decision for cues about the first interest rate cut, which, in turn, will provide a fresh directional impetus to the non-yielding yellow metal.
  • Heading into the key central bank event risk, traders will confront the release of the ADP report on private-sector employment and Chicago PMI later during the North American session.

The overnight failure to find acceptance above the $2,040-2,042 supply zone and some follow-through selling below the 50-day Simple Moving Average (SMA), currently around the $2,030-2,029 region, will expose the $2,012-2,010 support zone. This is followed by the $2,000 psychological mark, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. The Gold price might then accelerate the decline towards the 100-day SMA, currently near the $1,979-1,978 area, before eventually dropping to the very important 200-day SMA, near the $1,964 region.

On the flip side, bulls need to wait for acceptance above the $2,040-2,042 static resistance and a subsequent move beyond the overnight swing high, around the $2,048-2,049 region, before placing fresh bets. Given that oscillators on the daily chart have just started moving into the positive territory, the Gold price could then accelerate the positive move towards the next relevant hurdle near the $2,077 zone. The momentum could extend further and allow bullish traders to aim back towards reclaiming the $2,100 round-figure mark.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the .

USD   0.23% 0.14% 0.12% 0.39% 0.18% 0.25% 0.17%
EUR -0.23%   -0.09% -0.11% 0.18% -0.05% 0.02% -0.05%
GBP -0.14% 0.09%   -0.01% 0.25% 0.05% 0.10% 0.04%
CAD -0.12% 0.11% 0.00%   0.27% 0.06% 0.13% 0.05%
AUD -0.39% -0.16% -0.24% -0.27%   -0.21% -0.13% -0.22%
JPY -0.18% 0.05% -0.06% -0.06% 0.24%   0.05% -0.01%
NZD -0.24% 0.02% -0.10% -0.13% 0.15% -0.08%   -0.07%
CHF -0.16% 0.06% -0.04% -0.05% 0.21% 0.01% 0.07%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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.