Gold remains depressed amid hawkish Fed-inspired modest USD strength


  • Gold price trades with a mild negative bias through the first half of the European session. 
  • Reviving Fed rate hike bets underpin the USD and weigh on the non-yielding yellow metal.
  • Receding safe-haven demand contributes to the offered tone, though China’s economic woes may mitigate its losses.

Gold price (XAU/USD) posted modest recovery gains on Thursday and snapped a three-day losing streak to its lowest level since October 18, around the $1,944 area, though lacks follow-through. The precious metal ticks lower to the $1.955 area on Friday and remain on track to register its worst week in more than a month in the wake of this week’s goodish US Dollar (USD) rebound from its lowest level since September 20.

A slew of influential FOMC members this week struck a more hawkish tone, while Federal Reserve (Fed) Chair Jerome Powell said on Thursday that policymakers are not sure that rates are sufficiently restrictive to further slow the pace of inflation. This allows the yield on the benchmark 10-year US government bond to move away from over a one-month low and underpin the USD, which, in turn, is seen weighing on the non-yielding Gold price.

Apart from this, receding safe-haven demand, amid easing concerns over the Israel-Hamas conflict, turns out to be another factor undermining the XAU/USD. That said, worries about the worsening economic conditions in China could limit the downside. Traders now look to the release of the Michigan US Consumer Sentiment Index, which might influence the USD. This, along with the broader risk sentiment, could produce short-term opportunities around the Gold price. 

Daily Digest Market Movers: Gold price remains on track to reigster losses for the second straight week on hawkish Fed

  • Gold price posted modest recovery gains on Thursday and snapped a three-day losing streak to its lowest level since October 18, though it is lacking any follow-through buying.
  • Federal Reserve officials, including Chair Jerome Powell, backed the case for further policy tightening to rein in inflation and cap gains for the non-yielding yellow metal.
  • Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin noted that the current monetary policy stance is likely sufficiently restrictive.
  • Philadelphia Fed president Patrick Harker said on Thursday that interest rates should stay higher for longer and that the fight against inflation is still not over yet.
  • St. Louis Fed interim President Kathleen O’Neill Paese said that it was too soon to rule out further interest rate hikes and declare a victory on inflation.
  • Powell said that policymakers are not yet confident that rates are high enough to bring inflation to the 2% target and that the Fed will not hesitate to raise rates again.
  • The White House announced on Thursday that Israel will implement four-hour pauses in Gaza operations each day to allow people to flee hostilities from two humanitarian corridors.
  • China’s economic woes continue to haunt market sentiment and should lend support to the safe-haven precious metal as traders look to the US Consumer Sentiment Index.

Technical Analysis: Gold price needs to move back above the $2,000 mark to negate the near-term negative outlook

From a technical perspective, any subsequent move is likely to confront resistance near the $1,970 level, which if cleared might trigger a short-covering rally. The Gold price might then aim to surpass an intermediate hurdle near the $1,980 region and test the $1,990-$1,992 supply zone. This is followed by the $2,000 psychological mark, above which the XAU/USD could climb back to a multi-month top, around the $2,009-2,010 area touched in October.

On the flip side, the overnight swing low, around the $1,944 area, now seems to protect the immediate downside ahead of the very important 200-day Simple Moving Average (SMA), currently pegged around the $1,935-1,934 region. This is followed by the 100-day SMA, near the $1,927-1,926 area. Some follow-through selling will suggest that the Gold price has topped out in the near term and shift the bias in favour of bearish traders.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Swiss Franc.

USD   0.56% 1.23% 1.01% 2.40% 1.20% 1.71% 0.47%
EUR -0.56%   0.69% 0.46% 1.85% 0.64% 1.16% -0.09%
GBP -1.25% -0.69%   -0.23% 1.17% -0.05% 0.47% -0.78%
CAD -1.03% -0.46% 0.23%   1.39% 0.18% 0.68% -0.55%
AUD -2.46% -1.88% -1.19% -1.42%   -1.23% -0.71% -1.98%
JPY -1.21% -0.64% -0.18% -0.17% 1.23%   0.50% -0.73%
NZD -1.72% -1.15% -0.45% -0.68% 0.72% -0.51%   -1.24%
CHF -0.48% 0.09% 0.77% 0.54% 1.94% 0.73% 1.24%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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