- Gold price attracts some haven flows in the wake of a turnaround in the global risk sentiment.
- Retreating US bond yields prompts some USD profit-taking and also lends support to the metal.
- Hawkish Fed expectations should act as a tailwind for the buck and cap gains for the XAU/USD.
Gold price (XAU/USD) ticks higher on Tuesday and for now, seems to have snapped a two-day losing streak to the $2,015 area, or over a one-week low touched the previous day. The uptick is sponsored by a slight deterioration in the global risk sentiment, which tends to underpin the safe-haven precious metal. Furthermore, a modest downtick in the US Treasury bond yields exerts some pressure on the US Dollar (USD) and lends additional support to the commodity.
The markets, meanwhile, have fully priced out the possibility of early interest rate cuts by the Federal Reserve (Fed) in the wake of the incoming stronger US macro data, which pointed to a still resilient economy. Adding to this, the recent hawkish remarks by several Fed officials suggested that the US central bank will keep interest rates higher for longer. This should act as a tailwind for the US bond yields, which favours the USD bulls and might cap the non-yielding Gold price.
- Persistent worries about geopolitical tensions stemming from conflicts in the Middle East and slowing economic growth in China lend some support to the safe-haven Gold price.
- The Institute for Supply Management (ISM) reported on Monday that the US services sector growth picked up pace in January amid an increase in new orders.
- The US ISM Non-Manufacturing PMI increased to 53.4 last month from 50.5 in December, with a measure of input prices or the Prices Paid sub-component rising to an 11-month high.
- This comes on top of Friday’s blowout US jobs report and reaffirmed the view that the economy is in good shape, diminishing the chances of a rate cut by the Federal Reserve in March.
- Moreover, hawkish comments by several Fed officials suggest that the first-rate cut might not come until May or June, which remains supportive of elevated US Treasury bond yields.
- The yield on the rate-sensitive 2-year US government bond climbed to a one-month top on Monday and the benchmark 10-year US Treasury yield holds comfortably above the 4.0% mark.
- The US Dollar stands tall near its highest level in almost three months and might further contribute to capping any meaningful appreciating move for the non-yielding yellow metal.
- In an interview with the CBS News show 60 Minutes that aired on Sunday, Fed Chair Jerome Powell said that the central bank could be patient in deciding when to cut interest rates.
- Minneapolis Fed President Neel Kashkari argued that a possibly higher neutral rate means that the central bank can take more time to assess upcoming data before beginning interest rate cuts.
- Chicago Fed President Austan Goolsbee noted that there have been seven months of good inflation reports, though did not comment on the timing of the first interest rate cut.
- China’s Central Huijin Investment company reportedly said that it will increase its investment in Chinese stock ETFs and are determined to safeguard the stable operation of the market.
From a technical perspective, some follow-through selling below the $2,012-2,010 area might expose the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day Simple Moving Average (SMA) support, currently pegged around the $1,984-1,983 zone. The XAU/USD could eventually drop to challenge the very important 200-day SMA, near the $1,965 region.
On the flip side, momentum beyond the 50-day SMA, near the $2,033 area, is likely to confront resistance near the $2,054-2,055 zone ahead of the $2,065 region, or last week’s swing high. Given that oscillators on the daily chart are just holding in the positive territory, some follow-through buying has the potential to lift the Gold price towards the $2,078-2,079 region, or the YTD peak set in January. The subsequent move-up should allow the XAU/USD to reclaim the $2,100 mark and climb further to the next relevant hurdle near the $2,020 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | -0.06% | -0.16% | -0.31% | -0.01% | -0.17% | -0.04% | |
| EUR | 0.03% | -0.04% | -0.15% | -0.29% | 0.01% | -0.14% | 0.00% | |
| GBP | 0.06% | 0.03% | -0.11% | -0.26% | 0.04% | -0.11% | 0.02% | |
| CAD | 0.15% | 0.14% | 0.11% | -0.15% | 0.15% | -0.01% | 0.13% | |
| AUD | 0.33% | 0.30% | 0.26% | 0.17% | 0.32% | 0.15% | 0.27% | |
| JPY | 0.03% | 0.00% | -0.06% | -0.15% | -0.31% | -0.14% | -0.02% | |
| NZD | 0.17% | 0.14% | 0.11% | 0.01% | -0.16% | 0.15% | 0.13% | |
| CHF | 0.02% | -0.01% | -0.04% | -0.12% | -0.29% | 0.02% | -0.15% |
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).
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.