Gold price bounces off, downside remains favored as Fed rate-cut bets ease

• Gold price discovers bets near $2,000 but remains on backfoot amid easing Fed rate cut hopes.
• Stubborn US inflation and robust Retail Sales data favour a maintenance of hawkish interest rate stance.
• Market participants will focus on Fed Bostic’s commentary ahead.

Gold price (XAU/USD) has executed a short-term recovery move in the midst of a persistent downtrend. Gold price printed a fresh monthly low near the psychological support of $2,000 on Wednesday, then bounced. 

Yet despite the rebound, the precious metal remains on the backfoot as investors continue to worry about when the Federal Reserve (Fed) will start its long awaited rate-cut cycle. The hopes of an early rate-cut decision from the Fed are easing as the last leg of inflationary pressures in the United States is turning out significantly more stubborn than previously thought, due to robust consumer spending and steady labor market conditions.

Amid an absence of front-line economic indicators, market participants are expected to shift focus towards the first monetary policy meeting of the Fed, which is scheduled for January 31. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50%. Investors will keenly focus on how the Fed proposes to make three rate cuts of 25 basis points (bps) each in 2024, as projected in the December monetary policy meeting.

Daily Digest Market Movers: Gold price finds an interim support as US Dollar corrects

• Gold price discovers an intermediate support near the psychological $2,000 level after an intense sell-off.
• The near-term demand is still downbeat as uncertainty about an interest rate cut from the Federal Reserve in March has deepened.
• Trades have pared bets supporting a rate cut in March due to resilience in the US economy.
• Bets supporting an interest rate cut of 25-basis points (bps) have increased slightly to 61% but are still below the 75% recorded last week, as per the CME Fedwatch tool.
• Market expectations for early cuts from the Fed have been pushed back as price pressures in the US economy remained stubborn and consumer spending grew strongly in December.
• Upbeat economic indicators have provided room to Fed policymakers to maintain a restrictive monetary policy stance for a longer period than that anticipated by market participants before their release.
• This week, Fed Governor Christopher Waller said the central bank should not rush taking interest rates down as more evidence is needed to ensure that price pressures are returning to 2% in a sustainable manner.
• Christopher Waller advised that the Fed should reduce interest rates “carefully and methodically”, considering resilience in the US economy. 
• Meanwhile, the US Dollar Index (DXY) has rebounded after a gradual correction to near 103.20, supported by risk-off market sentiment. 10-year US Treasury yields are maintaining a firm-footing above 4%.
• Later the day, investors will focus on the weekly jobless claims for the week ending December 12 and commentary from Federal Reserve of Atlanta Bank President Raphael Bostic.
• Bostic is expected to maintain a hawkish argument considering stubbornly higher price pressures.
• On Monday, Fed’s Bostic commented that progress in inflation declining towards 2% could slow if policymakers cut interest rates soon. 

Technical Analysis: Gold price finds a temporary support near $2,000

Gold price attempts a firm-footing near psychological support at $2,000 amid a nominal decline in the US Dollar Index. The near-term demand for the precious metal has turned bearish as it has slipped below the 50-period Exponential Moving Average (EMA), which trades around $2,017. The higher-high-higher-low formation in the Gold price is over and market participants could utilize pullbacks for building fresh shorts.

The 14-period Relative Strength Index (RSI) has dropped to near 40.00. If the RSI fails to sustain above 40.00 levels, a bearish momentum will get triggered.