- The price of Gold falls after US private employment data, higher than expected.
- Market participants remain concerned about the timing of rate cuts by the Fed.
- The evolution of bullion and the Dollar will be influenced by official employment data.
The price of Gold (XAU/USD) misses most of the intraday gains following the release of US Automatic Data Processing (ADP) Employment Change data for December. U.S. private employers hired 164,000 workers versus expectations of 115,000 and the previous reading of 103,000. The general appeal for the price of Gold is optimistic as the prospects for rate cuts by the Federal Reserve (Fed) have strengthened following the publication of the minutes of the Federal Open Market Committee (FOMC). Although uncertainty over when exactly the Fed will announce a rate cut decision could keep volatility in the price of Gold high.
Meanwhile, the strong economic outlook for the US economy could force Fed policymakers to delay announcing a rate cut longer than market participants expected, despite their concerns about excessive policy tightening. monetary.
The US Institute for Supply Management (ISM) reported a sharp rise in manufacturing PMI to 47.4 versus expectations of 47.1 and the previous reading of 46.7. However, factory data remained below the 50.0 threshold for the 14th consecutive month, which in itself indicates contraction, but higher performance indicates that overall production is returning to the expected path.
Looking ahead, investors should prepare for further volatility with the Non-Farm Payrolls (NFP) report due to be released on Friday.
Daily summary of market movements: Gold decline and dollar correction
- The price of Gold rises after receiving buying interest near $2,030, as uncertainty about the rate cut this year dissolves while the time element remains imprecise.
- The FOMC minutes released Wednesday indicated that Fed officials are concerned about excessive tightening of monetary policy.
- In the latest projections, the Fed foresees three rate cuts or a 75 basis point (bp) interest rate reduction this year.
- The lack of clues about when exactly the central bank will start cutting interest rates has slightly dampened the prospects for rate cuts from March.
- According to CME's Fedwatch tool, the odds in favor of a March rate cut of 25 basis points to 5.00-5.25% have fallen to 66.5%.
- Fed officials' talk of rate cuts indicates that underlying price pressures are clearly returning to the 2% target and that they are confident of achieving price stability without pushing the economy into a recession.
- US Dollar Index corrects after setting a new two-week high at 102.70 as one thing becomes clear in investors' minds: that the Fed will be the first to initiate a rate-cutting cycle among the G7 economies . US 10-year Treasury yields fall sharply and approach 3.91%.
- Market sentiment, however, could be volatile going forward amid uncertainty over the US NFP report and ISM Services PMI for December, due to be released on Friday.
Technical Analysis: Gold price points to a mean reversion towards the 20 EMA
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The price of Gold has made a mean reversion movement to approach the 20-period exponential moving average (EMA), which is trading around $2,050 on a two-hour scale. The precious metal experienced a sharp drop after a break below the support zone located around $2,055, which will act as resistance in the future.
The Relative Strength Index (RSI) (14) is demonstrating a range reversal movement from 60.00-80.00 to 20.00-60.00 in which the 60.0 region will act as a ceiling for the Gold price bulls.
On a daily time frame, Gold price is finding support after taking a cushion from the 20-day EMA, which is trading around $2,040. This indicates that the global demand for the price of Gold has not yet moderated.
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
