Gold dives as markets anticipate a hawkish Fed cut
- Gold fails at $2,665 and resumes its near-term bearish trend as the US Dollar picks up.
- Investors’ concerns about a “hawkish cut” by the Fed on Wednesday are buoying US Treasury yields.
- XAU/USD remains under pressure, approaching support at the $2,630 area.
Gold’s (XAU/USD) upside attempts have been short-lived. The precious metal retreats further on Tuesday’s European session, weighed by rallying US Treasury yields and a strong US Dollar (USD).
The stronger-than-expected US preliminary S&P Global Purchasing Managers Index (PMI) figures seen on Monday confirm the view of steady US growth in the fourth quarter and point to a gradual Federal Reserve (Fed) easing in 2025.
Later today, US Retail Sales are expected to show that consumption remained buoyant in November. In this context, investors are still confident that the Fed will cut rates on Wednesday but anticipate a hawkish forward guidance. This is boosting US Treasury yields and weighing on Gold.
Daily digest market movers: Gold suffers on hopes of a hawkish Fed
- Gold continues to lose ground as interest in the Middle East conflict recedes, at least for the moment. The focus now shifts to the US Federal Reserve, which starts its two-day monetary policy meeting today.
- Futures markets are almost fully pricing a 25 bps interest rate cut on Wednesday, according to the CME Group’s FedWatch Tool, but less than a 30% chance of more than two quarter-percentage cuts in 2025.
- US data from Monday revealed that business activity in the services sector expanded faster than expected in December, suggesting that the economy has remained growing at a healthy rate in the fourth quarter.
- Later today, US Retail Sales are expected to show a 0.5% growth in November, up from 0.4% the previous month. This suggests that consumption, which accounts for 65% of the Gross Domestic Product (GDP), will post a positive contribution in Q4.
Technical analysis: XAU/USD is under pressure with $2,630 support on focus
Gold keeps heading south after rejection at the $2,720 resistance area last week. A potential double top at the abovementioned level and the bearish engulfing candle last Thursday are keeping sellers hopeful.
The negative candle on the 4-hour chart suggests an increasing bearish momentum. The pair might find some support in the $2,630 area (December 9 low), although the key downside target is the November 25, 26, and December 6 lows at around $2,610.
On the other side, resistances are Monday’s high at $2,665 and Friday’s intra-day level at $2,690.
XAU/USD 4-Hour Chart
Economic Indicator
Retail Sales (MoM)
The Retail Sales data, released by the US Census Bureau on a monthly basis, measures the value in total receipts of retail and food stores in the United States. Monthly percent changes reflect the rate of changes in such sales. A stratified random sampling method is used to select approximately 4,800 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms across the country. The data is adjusted for seasonal variations as well as holiday and trading-day differences, but not for price changes. Retail Sales data is widely followed as an indicator of consumer spending, which is a major driver of the US economy. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Last release: Fri Nov 15, 2024 13:30
Frequency: Monthly
Actual: 0.4%
Consensus: 0.3%
Previous: 0.4%
Source: US Census Bureau
Retail Sales data published by the US Census Bureau is a leading indicator that gives important information about consumer spending, which has a significant impact on the GDP. Although strong sales figures are likely to boost the USD, external factors, such as weather conditions, could distort the data and paint a misleading picture. In addition to the headline data, changes in the Retail Sales Control Group could trigger a market reaction as it is used to prepare the estimates of Personal Consumption Expenditures for most goods.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.