Gold price sticks to modest gains as sliding US bond yields keep USD bulls on defensive
- Gold price gains some positive traction on Wednesday amid a softer US Dollar.
- Despite the warmer US CPI report, June Fed rate cut bets undermine the buck.
- Geopolitical risks stemming from conflicts in the Middle East also lend support.
Gold price (XAU/USD) attracts some buyers on Tuesday and sticks to its modest intraday gains above the $2,150 level, or the weekly low heading into the European session. The uptick, however, lacks follow-through as traders seek more clarity about the Federal Reserve’s (Fed) rate-cut path before placing fresh directional bets around the non-yielding yellow metal. The warmer-than-expected US consumer inflation data on Tuesday fuelled speculations that the Fed might stick to its higher for longer narrative in the near term and act as a headwind for the commodity.
The markets, however, are still pricing in a greater chance that the US central bank will start cutting interest rates in June. This is reinforced by a softer tone around the US Treasury bond yields, which keeps the US Dollar (USD) bulls on the defensive and acts as a tailwind for the Gold price. Apart from this, persistent geopolitical tensions help offset the negative factor and lend support to the safe-haven XAU/USD. Traders also seem reluctant and prefer to wait on the sidelines ahead of the highly-anticipated two-day FOMC monetary policy meeting starting next Tuesday.
Daily Digest Market Movers: Gold price struggles to lure buyers amid the uncertainty over Fed’s rate-cut path
- A hot US inflation report fuelled speculations that the Federal Reserve may delay interest rate cuts and pushed the US Treasury bond yields, underpinning the US Dollar and weighing on the Gold price on Tuesday.
- The headline US Consumer Price Index (CPI) rose by the 3.2% YoY rate in February from the 3.1% previous and expected, while the annual Core CPI came in at 3.8%, slightly above estimates for a reading of 3.7%.
- According to the CME Group’s FedWatch tool, the markets are still pricing in around a 70% chance that the US central bank will cut interest rates in June, which caps the USD and limits losses for the XAU/USD.
- A Qatari official said on Tuesday that Israel and Hamas are not close to a deal to halt the fighting in Gaza and free hostages, and warned that the situation remained very complicated despite weeks of truce talks.
- Iran-aligned Houthi rebels in Yemen said that they would escalate their military operations during the Muslim holy month of Ramadan in solidarity with Palestinians and response to the ongoing war in Gaza.
- The United States conducted six self-defence strikes, destroying an unmanned underwater vessel and 18 anti-ship missiles in retaliation to the two anti-ship ballistic missiles fired into the Red Sea by the Houthis.
- This should help limit the downside for the safe-haven precious metal as traders look to next week’s highly anticipated FOMC meeting for cues about the rate-cut path and before placing fresh directional bets.
Technical Analysis: Gold price technical setup still seems tilted in favour of bulls; overbought RSI warrants caution
From a technical perspective, the overnight swing low, around the $2,150 area, now seems to protect the immediate downside. Against the backdrop of the overbought Relative Strength Index (RSI) on the daily chart, a convincing break below might prompt some technical selling and drag the Gold price to the next relevant support near the $2,128-2,127 zone. The subsequent slide might expose the $2,100 round figure, which should act as a strong base for the XAU/USD and a key pivotal point for short-term traders.
On the flip side, any further move up is likely to face some resistance around the $2,174-2,175 region ahead of the $2,195 area, or the record peak touched last Friday. Some follow-through buying beyond the $2,200 mark will push the Gold price to the uncharted territory and set the stage for the resumption of the recent blowout rally witnessed over the past two weeks or so.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.02% | 0.02% | 0.03% | -0.03% | -0.19% | -0.11% | 0.03% | |
| EUR | -0.02% | 0.00% | 0.01% | -0.05% | -0.21% | -0.14% | 0.01% | |
| GBP | -0.02% | 0.00% | 0.01% | -0.04% | -0.21% | -0.12% | 0.01% | |
| CAD | -0.03% | -0.01% | -0.01% | -0.06% | -0.22% | -0.13% | 0.00% | |
| AUD | 0.04% | 0.05% | 0.03% | 0.06% | -0.17% | -0.10% | 0.03% | |
| JPY | 0.19% | 0.22% | 0.22% | 0.22% | 0.20% | 0.07% | 0.22% | |
| NZD | 0.11% | 0.12% | 0.12% | 0.13% | 0.08% | -0.08% | 0.15% | |
| CHF | -0.04% | -0.01% | -0.01% | 0.00% | -0.04% | -0.21% | -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).
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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