Introduction
Monday sees a return in the price of gold (XAU/USD) as investors reevaluate the Federal Reserve’s (Fed) forecast on interest rates. To guarantee that inflation returns to the 2% objective sustainably, policymakers continuously back the narrative of tight interest rates. Due to persistently high price pressure from strong consumer spending and full employment, the likelihood of impending rate reduction is fading, which is causing some sell-off in precious metals.
Because there aren’t any fresh signs of the tensions in the Middle East, bullion’s appeal has also declined. We have a full week of data coming up, so investors should brace themselves for substantial volatility. The US Dollar Index (DXY) is trading at the crucial support level of 103.00 ahead of the release of significant economic data, such as preliminary Q4 GDP numbers and the core Personal Consumption Expenditure (PCE) price index for December.
Daily summary market movers: US dollar rises while gold price declines
As investors reduced their expectations of an early rate decrease by the Federal Reserve, the price of gold corrected to around $2,020.
Bettors have been obliged to reduce their wagers in favor of an interest rate decrease decision in March due to persistent pricing pressures, strong consumer spending, and positive labor market conditions.
The likelihood of a 25-basis point (bps) interest rate cut in March has plummeted to 42%, down from 70% two weeks prior, according to the CME Group Fed watch tool.
This suggests that prior to the monetary policy meeting in May, investors do not anticipate a reduction in borrowing prices from the Fed.
In addition to decreasing anticipations of a rate reduction, this week’s planned monetary policy statement from the European Central Bank (ECB) is restricting the increase in the price of gold.
Fed policymakers, meanwhile, were admonishing last week about the potential derailment of their entire endeavor to lower inflation from a record high of 6.6% to current levels of 3.9% by launching a swift “rate-cut campaign.”
Early interest rate reductions may also increase demand generally, which would raise prices.
According to San Francisco Fed Bank President Mary Day, there is a balance of risks to the economy and present monetary policy is sound.
Mary Day counseled extremely cautious interest rate reduction, emphasizing that the 2% inflation target return should not be jeopardized. According to her, the Fed’s priorities for this year will be full employment rather than preserving price stability in 2023.
Since the US central bank has entered its blackout period ahead of its meeting on January 31, no remarks from Fed officials are anticipated this week.
The preliminary Q4 GDP figures, the core PCE price index for December, and the preliminary S&P Global PMI for January will be the main topics of interest for market players this week. Positive economic statistics would put more pressure on forecasts of a March rate reduction.
Technical Analysis: The 20-day EMA is putting pressure on the price of gold.
The price of gold steadily declines to about $2,020 as expectations that the Fed will decide to cut rates in March have greatly abated. Because the 20-day Exponential Moving Average (EMA) around $2,031 is continuously serving as a barrier for bulls, the precious metal finds it difficult to recover momentum. As investors await the important economic data that is expected later this week, which is anticipated to offer a new perspective on inflation and the interest rate outlook, a sideways performance is quite probable going forward.
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