Gold Resilience Amid Federal Reserve Rate Cut Speculations

Illustration depicting the soaring trajectory of gold against a backdrop of economic uncertainty.

Soaring Trajectory of Gold Amid Economic Uncertainty

Gold shines brightly, capturing the spotlight on Friday amidst escalating speculation about a potential Federal Reserve rate cut. Heightened concerns regarding an imminent global economic downturn further strengthen the position of this precious metal. Although the prevailing risk-on sentiment may temper the upward momentum, the market eagerly anticipates revelations from the US ISM PMI and Federal Reserve Chair Powell’s imminent discourse.

Asian Trading Resurgence: Sparking Gold Rally

Within the tumult of the Asian trading session on Friday, the gold price (XAU/USD) strategically attracts buyers after a brief dip, orchestrating a significant reversal of the losses incurred the previous day. Currently hovering around the $2,040 mark, the precious metal showcases an upward trajectory of over 0.15% for the day. Notably, it remains well within reach of its peak since May 5, a zenith touched just this Wednesday.

Analyzing insights from Thursday’s United States data reveals sustained moderation in inflation throughout October, coupled with a slowdown in the labor market’s momentum. This strengthens the prevailing belief that the Federal Reserve has concluded its interest rate elevation, casting a dovish shadow that decidedly favors the non-yielding golden asset.

Federal Reserve’s Nuanced Stance: A Balancing Act

Simultaneously, a pair of Federal Reserve representatives push back against the prevailing expectation of a swift move towards rate reductions. Their nuanced stance leaves room for potential policy tightening if progress on the inflation front stalls. However, this does little to obscure the imminent shift in the Fed’s policy outlook, effectively capping the recent resurgence of the US Dollar from its nadir since August 11.

Mixed signals from China’s economic resilience and the darkening global panorama provide support to the haven of gold. Yet, the recent surge in risk appetite across US equities might impose constraints on the XAU/USD, especially in anticipation of Fed Chair Jerome Powell’s upcoming address.

Fed’s Policy Outlook and Gold’s Resilience

The prevailing sentiment that the Federal Reserve will abstain from further rate hikes and may initiate a shift towards easing its monetary policy by the initial half of 2024 continues to underpin the non-yielding gold price. CME Group’s FedWatch Tool posits an even likelihood of a policy rate cut as early as March 2024 and an approximate 80% probability of such action during the May FOMC meeting. These prognostications find validation in the key inflation data unveiled on Thursday, spotlighting the unaltered state of the Personal Consumption Expenditures (PCE) Price Index in October. Over the preceding 12 months, the PCE Price Index notched the most modest year-on-year escalation since March 2021, witnessing a deceleration from 3.4% to 3.0% in the reported month.

Technical Analysis: Trajectory and Support Levels

Delving into technical analysis, the trajectory for the gold price appears poised for further appreciation. Bullish sentiments eagerly anticipate a breach beyond the multi-month pinnacle in the $2,052 vicinity. The daily chart’s oscillators maintain their positive stance, signaling that continued buying activity could catalyze the gold price’s momentum towards challenging the historical zenith, around the $2,079-$2,080 realm, witnessed in May.

Conversely, the overnight trough in the $2,030 terrain assumes the role of immediate support, preceding the $2,020 region and the formidable horizontal resistance junction between $2,010-$2,008. This juncture stands as a pivotal point; a breach could instigate technical selling, potentially compelling the gold price below the psychological $2,000 benchmark, towards testing the subsequent significant support near the $1,990 territory.

XAUUSD Daily Chart

Illustration depicting the soaring trajectory of gold against a backdrop of economic uncertainty

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