Gold price falls further as US Dollar, yields recover ahead of Powell speech

• Gold price drops to a near two-week low as investors channel funds into the US Dollar and bond yields rise.
• Geopolitical tensions stay more or less unchanged fading the appeal of Gold.
• Fed’s Kashkari acknowledges the need for more work to control inflation.

Gold price (XAU/USD) drops further as safe-haven demand diminishes amid no further escalation in geopolitical tensions. A recovery in the US Dollar and long-term bond yields further weigh on the precious metal. 

The downside move in Gold, however, may be short-lived as investors see an end to the Federal Reserve’s (Fed) rate-tightening campaign, due to gradually easing consumer inflation and higher Treasury yields, which have tightened financial conditions significantly.

Commentary from Federal Reserve Chairman Jerome Powell on Wednesday could drive further action in the US Dollar and bond markets. Powell may give an idea of whether investors should expect more interest rate hikes this year to ensure a return of inflation to the Fed’s 2% target. 

Fed Governor Lisa Cook said that the current interest rate policy is sufficiently restrictive to achieve price stability on Monday; Fed’s Kashkari, on the other hand, reportedly said the opposite in a Wall Street Journal article published on the same day.

Daily Digest Market Movers: Gold price falls as US Dollar recovers

• Gold price extends correction to near $1,970.00 amid a recovery in the US Dollar and bond yields as Federal Reserve policymakers line up to give guidance on inflation and interest rates this week.
• Gold price fades on an absence of significant escalation in Middle East tensions. 
• Israeli Prime Minister Benjamin Netanyahu has allowed entry of humanitarian aid to and the exiting of hostages from Gaza, but rejected a general ceasefire. Geopolitical tensions would keep broader demand for Gold intact.
• The US Dollar Index (DXY) discovered buyers’ interest marginally below the crucial support of 105.00 after commentary from Minneapolis Fed Bank President Neel Kashkari. The commentary from Kashkari indicated that he is leaning towards raising interest rates further.
• Kashkari commented that the economy is performing well despite higher interest rates. He added that the central bank has much work to do to ensure price stability.
• Contrary to Kashkari, Fed Governor Lisa Cook said the current monetary policy is adequate to bring down inflation to 2%. Cook commented that the US financial system is healthy enough to tackle economic challenges.
• The Fed kept interest rates unchanged in the 5.25-5.50% last week for the second time in a row on expectations that higher US bond yields are significantly tightening financial conditions, slowing overall demand and price pressures.
• The correction in Gold could conclude sooner and a revival is highly likely as investors hope that the Fed is done with hiking interest rates.
• A slowdown in labor demand and a decline in the Services PMI has cemented hopes that interest rates won’t be hiked further.
• As per the CME Fedwatch tool, traders see an 85% chance for interest rates remaining unchanged till the year-end.
• Meanwhile, 10-year US Treasury yields managed to attain a firm footing near 4.60% as investors shifted focus to the speech from Fed Chair Jerome Powell, scheduled for Wednesday. 
• Powell is expected to provide guidance on the requirement of more interest rate hikes to ensure the achievement of price stability or a time period for which rates will remain elevated and some glimpse into the performance of the economy in the fourth quarter of 2023. 
• Before Powell, speeches from other Fed policymakers: Christopher Waller and John C. Williams will be keenly watched.

Technical Analysis: Gold price falls further to near $1,970

Gold price extends downside marginally below $1,970.00 after several failed attempts of stabilization above the psychological resistance of $2,000. The precious metal is exposed to the 20-day Exponential Moving Average (EMA), which trades around $1,960.00. The broader trend is still bullish as the 200-day EMA is sloping higher. Momentum oscillators demonstrate that the bullish momentum has faded.