- Rising geopolitical tensions in the Middle East are providing some support to gold prices.
- Lower US Treasury yields also benefit XAU/USD, but USD bullishness caps upside.
- Traders also appear reluctant ahead of the crucial two-day FOMC monetary policy meeting.
Gold prices (XAU/USD) started the week on a strong note, but have struggled to gain strength as they remain below their 50-day simple moving average (SMA) during Asian trading . Traders appear to be passive now, choosing to wait for further clues about when the Federal Reserve will start cutting interest rates before betting on a new direction. All eyes will therefore remain on the outcome of the much-anticipated two-day FOMC monetary policy meeting starting Tuesday.
Meanwhile, the death of three US soldiers in a drone strike by Iran-backed militants raises the risk of significantly escalating geopolitical tensions in the Middle East. This, along with general weakness in the stock market, should provide a tailwind for the price of safe-haven gold. That said, the reduced likelihood of more aggressive policy easing by the Fed is a tailwind for the US dollar (USD) and prevents bulls from betting aggressively around XAU/USD.
Daily Digest Market Movement: Gold prices are supported by a recovery in safe-haven demand.lack of follow-through
- The risk of further escalating geopolitical tensions in the Middle East weighed on investor sentiment, supporting the price of safe-haven gold on the first day of the new week.
- Three U.S. soldiers were killed in a drone attack on a U.S. military base in Jordan, marking the first deaths of U.S. military personnel in the region since the Hamas-Israel war broke out on October 7.
- President Joe Biden doubled down on his promise of retaliation, saying the United States will respond when and how we choose and hold all responsible accountable.
- The U.S. dollar (USD) has stabilized just below a one-month high as investors continue to dial back hopes for more aggressive monetary easing from the U.S. Federal Reserve.
- But data released Friday showed inflation rose modestly in December and reaffirmed expectations that the Fed will begin cutting interest rates by mid-2024.
- The U.S. Bureau of Economic Analysis reported that the personal consumption expenditures (PCE) price index remained flat at an annualized rate of 2.6% in December.
- Meanwhile, the annual core PCE price index, which the Fed uses as a gauge of inflation, slowed more than expected to 2.9% from 3.2% in November.
- Other details in the publication show that personal spending rose 0.7% and personal income rose 0.3% in December, indicating strong demand from U.S. consumers.
- This, on top of the strong US Q4 GDP announced early last week, suggests the economy remains in good shape and adds to the optimism for a soft landing.
- A modest decline in U.S. Treasury yields is limiting further gains in the greenback and could continue to provide a tailwind for the low-yielding yellow metal.
- Traders may also want to wait for the FOMC meeting, which begins on Tuesday, and this week's key US macro data, including Friday's Nonfarm Payrolls (NFP) report.
Technical Analysis: Gold price needs to find acceptance above 50-day SMA for bulls to take control intraday
From a technical perspective, a move above the 50-day SMA hurdle, currently in the $2,027-$2,028 range, could continue to attract some sellers near the $2,040-$2,042 supply zone. If the strength above the latter persists, a short-covering rebound could occur and push gold prices further up to the intermediate hurdle of $2,077 on its way to the $2,100 mark.
On the contrary, immediate support is anchored around $2,012-$2,010, ahead of the psychological mark of $2,000. Some follow-through selling could be seen as another trigger for bearish traders, exposing the 100-day SMA, currently located around $1,977-$1,976. Gold prices could eventually fall and test the all-important 200-day SMA around $1,964-$1,963.
USD price today
The table below shows the percentage change of the US dollar (USD) against major currencies today. The US dollar was the strongest against the euro.
| USD | EUR | GBP | CAD | australian dollar | JPY | new zealand dollar | Swiss franc | |
| USD | -0.03% | -0.08% | -0.07% | -0.26% | -0.06% | -0.13% | -0.11% | |
| EUR | 0.03% | -0.04% | -0.03% | -0.22% | -0.01% | -0.10% | -0.08% | |
| GBP | 0.08% | 0.04% | 0.00% | -0.18% | 0.03% | -0.06% | -0.03% | |
| CAD | 0.06% | 0.02% | -0.02% | -0.19% | 0.02% | -0.06% | -0.04% | |
| australian dollar | 0.25% | 0.19% | 0.16% | 0.17% | 0.18% | 0.11% | 0.15% | |
| JPY | 0.06% | 0.02% | 0.13% | -0.01% | -0.18% | -0.10% | -0.05% | |
| new zealand dollar | 0.13% | 0.10% | 0.06% | 0.06% | -0.11% | 0.05% | 0.02% | |
| Swiss franc | 0.10% | 0.06% | 0.03% | 0.04% | -0.13% | 0.05% | -0.01% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Euro from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents EUR (base)/JPY (estimate).
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession could cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs typically put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
