Market news
28.09.2023, 04:17

Gold price hangs near its lowest levels since March on stronger USD and higher yields

  • Gold price enters a bearish consolidation phase near a multi-month low touched on Wednesday.
  • The prevalent risk-off environment is seen lending some support to the safe-haven XAU/USD.
  • Bullish USD and elevated US Treasury bond yields should keep a lid on any recovery move.

Gold price (XAU/USD) plunged to a six-and-half-month low, around the $1,873-1,872 region on Wednesday and registered its biggest single-day fall in two months. The precious metal remains on the defensive through the Asian session on Thursday and seems vulnerable to prolonging its rejection slide from a technically significant 200-day Simple Moving Average (SMA) tested last week.

A strong bullish sentiment surrounding the US Dollar (USD), along with elevated US Treasury bond yields, might continue to drive flows away from the Gold price. Rising bets for at least one more rate hike by the Federal Reserve (Fed) in 2023 act as a tailwind for the US bond yields and boost the USD. That said, the prevalent risk-off environment could lend some support to the safe-haven Gold price. This, along with the risk of a partial US government shutdown, might hold back traders from placing fresh bets around the XAU/USD. 

Traders now look to the final US Q2 GDP print for some impetus later during the early North American session. The focus, however, will remain on the US Core PCE Price Index on Friday, which will provide fresh cues about the Fed's future interest rate-hike path and provide a fresh directional impetus to the non-yielding Gold price. 

Daily Digest Market Movers: Gold price hovers near multi-month low on stronger USD, higher US bond yields

  • Gold price registered its biggest single-day fall in two months on Wednesday and seems vulnerable to slide further.
  • Hawkish comments by Minneapolis Fed President Neel Kashkari lift bets for at least one more rate hike in 2023.
  • The better-than-expected US Durable Goods Orders ensure that the Fed will keep interest rates higher for longer. 
  • The US Dollar stands tall near a 10-month high, while the 10-year US Treasury yields flirt with a 16-year peak.
  • Bullish USD and elevated US bond yields might continue to undermine demand for non-yielding yellow metal.
  • Investors remain worried about China's property sector and headwinds stemming from rising borrowing costs.
  • Republican US House Speaker Kevin McCarthy on Wednesday rejected a stopgap funding bill advancing in the Senate, bringing the government closer to its fourth partial shutdown in a decade.
  • The risk-off impulse might hold back bears from placing fresh bets around the Gold price and help limit losses.
  • Traders now look to the final US Q2 GDP, though the focus remains on the US Core PCE Price Index on Friday.

Technical Analysis: Gold price might consolidate before the next leg down

From a technical perspective, the subdued range-bound price action might be categorized as a bearish consolidation phase. Moreover, the lack of any buying interest suggests that the path of least resistance for the Gold price remains on the downside. That said, the Relative Strength Index (RSI) on the daily chart has just started drifting in the oversold zone and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest rebound before traders start positioning for a further depreciating move. Nevertheless, the XAU/USD seems poised to test the next relevant support near the $1,860-1,858 region before eventually dropping to the $1,820 level.

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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