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Gold price rally extends with bulls eyeing 50-day SMA ahead of FOMC minutes

Republished By Plato
Republished By Plato

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  • Gold reaches $2,028.44, climbing for the fourth day on China’s rate moves and US inflation figures.
  • US Treasury yields fall, showing market caution and adjusted expectations for Fed rate cuts amid inflation.
  • Market anticipates FOMC minutes for clues on Fed’s policy stance, bolstering Gold as an uncertainty hedge.

Gold price rallied for the fourth straight day during the mid-North American session as traders from the United States (US) got back to their desks and digested the latest economic news. News that China lowered interest rates sponsored Gold’s leg-up alongside the drop in US Treasury bond yields.

Meanwhile, last week’s data from the US, with the Consumer Price Index (CPI) and the Producer Price Index (PPI) smashing estimates, sounded alarms that inflation remains stickier than expected. The XAU/USD trades at $2,028.44, up 0.52%.

Trading resumed in the US on Tuesday after Monday’s Presidents’ Day holiday. US Treasury bond yields edged lower as depicted by the 10-year note yield down four basis points to 4.256%. This is despite investors adopting a cautious stance on the US Federal Reserve (Fed) as data from the Chicago Board of Trade (CBOT) expects the Fed to lower rates by 102 basis points in 2024, less than the 180 bps estimated in mid-January.

Nevertheless, the Greenback (USD) is treading water amid the lack of economic data on the US docket. Traders await the release of the last Federal Open Market Committee (FOMC) Meeting Minutes.

Daily digest market movers: Gold advanced despite investors pushing Fed rate cuts to June

  • The CME FedWatch Tool sees traders expect the first 25 bps rate cut by the Fed in June 2024.
  • Investors are pricing in 102 basis points of easing throughout 2024.
  • The US Dollar Index, tracking the performance of the US Dollar against a basket of six major currencies, is currently trading within a narrow range around 104.20.
  • The latest inflation reports from the US triggered a change of language from Fed officials, who struck a “cautious” tone. Atlanta Fed President Raphael Bostic suggested the Fed is in no rush to ease policy.
  • San Francisco Fed President Mary Daly stated, “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
  • This week the US economic schedule will feature the release of the latest Federal Reserve Open Market Committee (FOMC) Minutes alongside Fed officials’ speeches beginning on Wednesday.
  • Traders will get further cues from US S&P Global PMIs, Initial Jobless Claims data and the Chicago Fed National Activity Index, usually a prelude to the Institute for Supply Management’s (ISM) Manufacturing PMI.

Technical Analysis: Gold stays above 100-day SMA, eyes key resistance near 50-day SMA

Gold´s daily chart portrays the non-yielding metal as neutral to downwardly biased despite staying above the 200-day Simple Moving Average (SMA) at $1,965.46 and extending its gains toward the 50-day SMA at $2,033.69. A breach of the latter will expose $2,050 ahead of the latest cycle high at $2,065.60.

On the flip side, if sellers step in and push prices below the $2,000 figure, that will expose the 100-day SMA at $1,998. The next stop would be the December 13 low at $1,973.13, followed by the 200-day SMA at $1,965.47.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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