- Gold advances sharply, gaining over 1{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea} amid weakening US economic indicators.
- Softer US jobs and housing data increase expectations of two 25-bps Fed rate cuts in 2024.
- Rising geopolitical tensions in the Middle East and North Korea-Russia pact enhance Gold’s safe-haven appeal.
Gold prices advanced sharply by more than 1{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea} on Thursday during the North American session as US Treasury bond yields advanced to underpin the Greenback. Data from the United States was softer than expected, boosting traders’ confidence that the Federal Reserve (Fed) will ease policy at least twice in 2024. The XAU/USD trades at $2,356 at the time of writing.
The latest economic data from the US continued to show that the economy is decelerating, prompting investors to price in two 25-basis-point (bps) interest rate cuts. A worse-than-expected US jobs report revealed the number of Americans filing for unemployment benefits rose above estimates.
US housing data disappoints markets as Building Permits and Housing Starts cooled.
In the meantime, Minneapolis Fed President Neel Kashkari stated that it will likely take a year or two to bring core inflation down to 2{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea}. He added that the trajectory of interest rates would depend on the economic conditions, emphasizing, “We are achieving disinflation despite remarkable economic growth.”
Rising geopolitical risks helped the golden metal uptrend. Tensions in the Middle East are rising as Israel threatens to launch an attack on Hezbollah in Lebanon. That, along with the recently signed pact between Russia and North Korea, could increase the appeal for the yellow metal, which is trading near a crucial resistance level.
The CME FedWatch Tool shows that the odds for a 25 bps rate cut for September stand at 58{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea}, down from 62{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea} a day ago. In the meantime, the December 2024 fed funds futures contract implies the Fed will cut 36 bps toward the end of the year.
Daily digest market movers: Gold price rises amid high US yields and strong USD
- US Dollar Index prints gains of 0.405, up at 105.64, a headwind for Gold prices.
- US Treasury bond yields jumped, 10-year Treasury note yield is up more than four basis points to 4.257{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea}.
- US Initial Jobless Claims for the week ending June 15 rose to 238K, exceeding estimates of 235K but lower than the previous reading of 243K.
- US Building Permits declined by 3.6{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea} in May, dropping from 1.44 million to 1.386 million. Housing Starts for the same period fell by 5.5{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea}, from 1.352 million to 1.277 million.
- Fed officials counseled patience on interest rate cuts and emphasized they would remain data dependent. Although last week’s CPI report was positive, policymakers reiterated they need to see more reports like May’s data.
- Despite the US CPI report showing that the disinflation process continues, Fed Chair Jerome Powell commented that they remain “less confident” about the progress on inflation.
Technical analysis: Gold price challenges Head-and-Shoulders pattern, climbs past $2,350
Gold buyers are testing the Head-and-Shoulders pattern, dragging the golden metal above the pattern’s neckline. A daily close above the latter’s confluence and the 50-day Simple Moving Averages (SMA) at around $2,343 could negate the bearish chart pattern and open the door for further gains.
In that event, Gold could extend its gains above $2,350, exposing additional key resistance levels. Next would be the June 7 cycle high of $2,387, ahead of challenging the $2,400 figure.
Conversely, if XAU/USD drops below $2,343, that would keep the Head-and-Shoulders chart pattern intact, and Gold could be headed to the downside. If XAU/USD slides drops below $2,300, the next support would be the May 3 low of $2,277, followed by the March 21 high of $2,222. Further losses lie underneath, with sellers eyeing the Head-and-Shoulders chart pattern objective from $2,170 to $2,160.
Fed FAQs
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{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea} 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{721fc769be108e463fe4e33f629fb22fe291c423a7a69eaaf65dcb28e9b05dea} or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
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.
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.
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.
