Gold Price Faces Pressure as US Bond Yields Rise
The uncertainty surrounding the Federal Reserve’s rate-cut trajectory and elevated US bond yields are exerting downward pressure on the gold price.
Gold prices have experienced a slight decline following the release of the better-than-expected monthly employment details in the United States. Despite an initial recovery, the momentum has stalled due to uncertainty surrounding the Federal Reserve’s rate-cut trajectory. Additionally, elevated US Treasury bond yields are acting as a headwind for the US Dollar and putting downward pressure on the gold price. However, a softer risk tone and upcoming US inflation data may help limit further losses for the safe-haven asset.
Economic Data and Fed Remarks Dampen Rate-Cut Expectations
The release of robust economic data in the US, including a strong December jobs report, has caused investors to scale back their expectations for an imminent shift in the Federal Reserve’s policy stance. The US economy added 216,000 new jobs, surpassing expectations, while the unemployment rate remained steady at 3.7%. Furthermore, US Factory Orders grew more than expected in November, indicating a resilient economy. Hawkish remarks from Fed officials have also contributed to reduced expectations for aggressive policy easing.
Impact of US Bond Yields and Dollar Strength
Elevated US Treasury bond yields, which have surpassed the 4.0% threshold, are acting as a tailwind for the US Dollar and undermining the gold price. The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at the March meeting, as well as a cumulative total of five 25 basis points rate cuts for 2024. The strength of the US Dollar and rising bond yields are exerting downward pressure on the non-yielding yellow metal.
Geopolitical Risks and China’s Economic Woes
Geopolitical risks, such as an escalation of tensions in the Middle East and concerns about China’s economic recovery, may provide some support for the safe-haven gold price. The recent rocket attacks by Lebanese militant group Hezbollah into northern Israel in response to the assassination of Hamas senior leader Saleh al-Arouri highlight the ongoing tensions in the region. These factors, coupled with the upcoming US consumer inflation figures, could influence the direction of the gold price.
Technical Analysis and Key Support Levels
From a technical perspective, the gold price appears vulnerable, with a multi-week low around the $2,024 area serving as a key support level. A break below this level could lead to further depreciation, potentially reaching the 50-day Simple Moving Average around the $2,011 area. On the upside, a breakthrough of the immediate hurdle at $2,050 could pave the way for a short-covering rally, with resistance levels at $2,064 and $2,077.
Conclusion:
The gold price is facing pressure due to reduced expectations for aggressive rate cuts by the Federal Reserve and elevated US bond yields. However, geopolitical risks and concerns about China’s economic recovery may provide some support for the safe-haven asset. Traders are closely watching upcoming US inflation data to determine the next directional move for the gold price. Overall, the market sentiment and economic indicators will continue to play a crucial role in shaping the future of the gold market.