Gold Price Under Pressure as US Bond Yields Rise
Uncertainty around Fed rate cuts and strong US economic data weigh on gold price
The gold price (XAU/USD) experienced a brief recovery after hitting a two-week low following the release of better-than-expected US employment data. However, the momentum stalled due to uncertainty surrounding the Federal Reserve’s rate-cut trajectory. Elevated US Treasury bond yields, which act as a headwind for the US Dollar (USD), have put downward pressure on the gold price. While a softer risk tone may limit losses, investors are eagerly awaiting the release of US consumer inflation figures to confirm the next direction for gold.
1: US Economic Data Supports Hawkish Fed Stance
The US economy added 216,000 new jobs in December, surpassing expectations. Additionally, the unemployment rate remained steady at 3.7%, defying predictions of an increase to 3.8%. US Factory Orders also exceeded expectations, growing by 2.6% in November. These robust economic indicators, along with hawkish remarks from Fed officials, have dashed hopes for aggressive policy easing by the central bank. As a result, US Treasury bond yields have risen, putting pressure on the gold price.
2: Softening Risk Tone and Geopolitical Risks
Investor sentiment has been dampened by concerns about a slow economic recovery in China and escalating tensions in the Middle East. These factors, coupled with a fresh decline in US equity futures, have contributed to a softer risk tone. This may help limit deeper losses for the safe-haven gold price. Geopolitical risks, such as the recent rocket attacks by Lebanese militant group Hezbollah and the assassination of Hamas senior leader Saleh al-Arouri, could provide some support for gold.
3: Market Expectations and Central Bank Outlook
While US bond yields remain elevated, the markets still anticipate a greater chance of the first interest rate cut by the Fed at the March meeting. The cumulative expectation is for five 25 basis points rate cuts in 2024. However, comments from Fed officials, including Dallas Fed President Lorie Logan and Richmond Fed President Thomas Barkin, suggest a more cautious approach. Logan warns of the risk of inflation picking back up if financial conditions are not sufficiently tight, while Barkin expresses confidence in the economy and keeps rate hikes on the table.
4: Technical Analysis and Key Levels to Watch
From a technical standpoint, 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, with the 50-day Simple Moving Average (SMA) around the $2,012-2,011 area providing additional support. On the upside, a break above the immediate hurdle at $2,050 could lead to resistance near the $2,064-2,065 area and potentially a rally towards the $2,100 mark.
Conclusion:
The gold price is facing downward pressure due to elevated US bond yields and a hawkish stance from the Federal Reserve. Strong US economic data and geopolitical risks have further contributed to this trend. However, a softer risk tone and upcoming US consumer inflation figures may provide some support for gold. Traders are advised to closely monitor key technical levels and market expectations to gauge the future direction of the gold price.