Gold price dips ahead of key Federal Reserve decision
- Gold falls 0.33% as markets anticipate Fed rate cut.
- Markets have nearly fully priced in a 25-basis-point rate cut; focus shifts to the Fed's dot plot for 2025 rate path insights.
- Investors remain attentive to US data, including GDP data and core PCE.
Gold price extended its downtrend for the second consecutive day as traders brace for the Federal Reserve (Fed) monetary policy decision. Even though market participants widely expect a rate cut, they are eyeing cues about the interest rate path in 2025. At the time of writing, XAU/USD trades at $2,636, down 0.33%.
Traders have priced in a 95.4% chance of a 25-basis-point (bps) Fed rate cut, yet they are mainly focused on the Summary of Economic Projections (SEP), known as the dot plot, which Fed officials use to express their views about monetary policy.
At the September meeting, the dot plot hinted that policymakers project the fed funds rate to end 2025 near 3.4%, down from June’s 4.1%.
Nevertheless, robust US economic data, a stalled disinflationary process, and expansionary fiscal policies by the upcoming administration might forestall Fed Chair Jerome Powell and company from easing policy aggressively.
Some analysts said that if the dot plot is adjusted to two rate cuts instead of four, it would be seen as hawkish and support the US Dollar.
The US economic docket features solid US housing data with upbeat Building Permits for November, while Housing Starts dipped for the fourth consecutive month.
This week, investors will also focus on Thursday's US GDP data and the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, which could impact Bullion demand.
Daily digest market movers: Gold price retraces as US yields climbed
- Gold prices dropped as US real yields recovered, up by one basis point to 2.085%, a headwind for the precious metal.
- The US 10-year Treasury bond yield stays firm at 4.395%, unchanged.
- The US Dollar Index, which tracks the performance of the American currency against six others, surges 0.20%% to 107.15.
- Building Permits in November rose by 6.1% MoM from 1.419 million to 1.505 million.
- Housing Starts for the same period fell -1.8% MoM from 1.312 million to 1.289 million.
- Recently released US Retail Sales data and Flash PMIs hint that the economy remains solid amid interest rates set above 4%. Although inflation edged lower, core prices stalling at 3% and headline inflation printing higher readings for three straight months suggest that inflation risks are skewed to the upside.
- The CME FedWatch Tool suggests that traders had priced in a 95% chance of a quarter-point rate cut on Wednesday.
- For 2025, investors are betting that the Fed will lower rates by 100 basis points.
Technical outlook: Gold price retreats, sellers eye 100-day SMA
Gold price remains upwardly biased, though it has remained trading sideways during the last three days, with no definitive direction. The golden metal trades within the $2,602-$2,670 area, capped by the 100 and 50-day Simple Moving Averages (SMAs), respectively.
For a bullish resumption, the XAU/USD must clear $2,650, followed by the 50-day SMA at $2,670. If surpassed, the next stop would be $2,700. Conversely, if XAU/USD drops below the 100-day SMA, the next support would be $2,600. If the price slips, the next support would be the November 14 swing low of $2,536, before challenging the August 20 peak at $2,531.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.