- Gold price tests region above $2,140 as investors expect the Fed will cut interest rates in June.
- The US Dollar remains on the back foot ahead of Fed Powell’s testimony, NFP data.
- Fed Powell’s guidance on interest rates will influence market expectations for rate cuts in June.
Gold price (XAU/USD) continues its winning spell for the fifth trading session on Tuesday. The precious metal approaches its all-time high of around $2,145, seen in December 2023 as US Treasury yields come under pressure. The 10-year US Treasury yields drop sharply to 4.15% in the early American session.
Gold’s advance is supported by cautious market sentiment and increased bets that the Federal Reserve (Fed) will cut interest rates in the June policy meeting. However, the near-term outlook for Gold price remains uncertain as investors await Fed Chair Jerome Powell’s testimony before Congress on Wednesday and a slew of labor market data from the United States, such as JOLTS Job Openings for January and ADP Employment Change data, which will be announced on Wednesday.
The commentary from Jerome Powell on the inflation and the interest rate outlook could trim uncertainty associated with the timing of the Fed’s rate cuts. A hawkish guidance on interest rates could weigh on Gold as it will increase the holding cost of investment in non-yielding assets.
Later this week, the US Nonfarm Payrolls (NFP) for February will provide fresh cues on labor demand and wage growth. Apart from keeping inflation under control, reaching maximum employment is a key mandate for Fed policymakers when deciding on interest rates.
Daily digest market movers: Gold price holds onto gains ahead of Fed Powell’s testimony
- Gold price aims to recapture an all-time high near $2,145. The safe-haven demand strengthens as investors seem confident that the Federal Reserve will start reducing interest rates in June. The CME FedWatch tool shows that traders see a little over 52% chance for a rate cut by 25 basis points (bps) in the June meeting. For the upcoming monetary policy meeting on March 19-20, investors see the Fed keeping interest rates unchanged in the range of 5.25%-5.50%.
- The near-term demand for Gold will be influenced by Fed Chair Jerome Powell’s testimony before Congress on Wednesday and an array of United States economic data released later this week. Jerome Powell is expected to reiterate that there is no urgency for rate cuts due to resilient economic growth. The Fed isn’t likely to shift from its hawkish stance towards policy normalization until it gets convinced that inflation will sustainably return to the 2% target. The Fed wants to see inflation declining for months as evidence before considering rate cuts.
- On Monday, Atlanta Fed Bank President Raphael Bostic said a strong labor market and decent economic growth have bought time for the Federal Open Market Committee (FOMC) to decide on when rate cuts will be optimal. Bostic added that the Fed is having a “rebounding success” as inflation slowly returns to the desired target without hurting labor demand.
- The US Dollar remains sideways in a narrow range ahead of the US ISM Services PMI for February, which will be published at 15:00 GMT. According to economists, the Services PMI is expected to drop to 53.0 from 53.4 in January. The US Manufacturing PMI, released on Friday, was downbeat. A weak Service PMI would raise concerns over economic prospects.
- The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades near a two-day low around 103.70.
Technical Analysis: Gold price tests region above $2,140
Gold price gains momentum as it successfully breaks out from the Symmetrical Triangle pattern on the daily time frame. This breakout results in a volatility expansion, characterized by wider upward ticks and increased trading volume. The precious metal now has the potential to extend its upward movement towards the horizontal resistance traced from the December 4 high at $2,144.48.
The 14-period Relative Strength Index (RSI) maintains a position above 60.00, signaling a bullish momentum ahead. While the RSI (14) does not display any divergence signals, it has entered overbought territory.
