- The gold price trades with a negative bias in Friday’s Asian session.
- The firmer USD, expectation of a slower pace of Fed rate cuts, exert selling pressure on the Gold price.
- The US Retail Sales report for October will take center stage later on Friday.
The Gold price (XAU/USD) struggles to gain ground around $2,570 on Friday after bouncing off a two-month low in the previous session. The precious metal remains under selling pressure amid the strong US Dollar (USD) and the rising uncertainty surrounding the Federal Reserve’s (Fed) pace of interest rate reductions. The expectations of higher inflation next year due to Donald Trump’s policies have led to fewer expected rate cuts, weighing on the yellow metal as higher interest rates make holding non-yielding assets like gold less appealing.
However, the escalating tensions in the Middle East and the ongoing conflict between Ukraine and Russia could boost the Gold price, a traditional safe-haven asset. Looking ahead, investors will monitor the US Retail Sales for October, which are due later on Friday. Also, the NY Empire State Manufacturing Index and Industrial Production data will be published. The Fed’s Susan Collins and John Williams are set to speak later in the same day.
Gold price extends losses amid US Dollar rally
- Fed Chair Jerome Powell said on Thursday that the recent performance of the US economy has been “remarkably good,” giving the Fed room to lower interest rates at a careful pace, per Bloomberg.
- Richmond Fed President Thomas Barkin stated on Thursday that while the Fed has made strong progress so far, there’s still more work to be done to keep the momentum going.
- The US Producer Price Index (PPI) rose 2.4% YoY in October, compared to a 1.9% rise recorded in September (revised from 1.8%), according to the US Bureau of Labor Statistics onThursday. This figure came in above the market expectation of 2.3%.
- The US weekly Initial Jobless Claims for the week ending November 9 increased to 217K from the previous week of 221K, below estimates of 223K.
- According to the CME FedWatch Tool, the markets have priced in nearly 59.1% of the 25 basis points (bps) rate cut by the Fed at the December meeting, down from 75% last week.
Gold price seems to resume the bearish trend
The Gold price edges lower on the day. The positive outlook of the precious metal seems vulnerable on the daily timeframe as the price hovers around the key 100-day Exponential Moving Average (EMA). The yellow metal could resume the downside if it can break below the 100-day EMA. The downward momentum cannot be ruled out as the 14-day Relative Strength Index (RSI) stands below the 50-midline near 33.60.
Consistent trading below the 100-day EMA could pave the way to $2,485, the low of September 8. The additional downside filter to watch is $2,353, the low of July 25. Extended losses could see a drop to the $2,300 psychological mark.
On the upside, the immediate resistance level for XAU/USD emerges near the support-turned-resistance level at $2,665. A decisive break above this level could result in a rally to $2,750, the high of November 6.
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% 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.
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.
