- Gold price draws some support from escalating geopolitical tensions in the Middle East.
- Sliding US bond yields also benefit the XAU/USD, though the uptick lacks follow-through.
- Traders also seem reluctant ahead of the crucial two-day FOMC monetary policy meeting.
Gold price (XAU/USD) attracts some buying on the first day of a new week and sticks to its modest intraday gains heading into the European session, with bulls awaiting a breakout through the 50-day Simple Moving Average (SMA). The killing of three US Army soldiers in a drone attack by Iran-backed militant groups raises the risk of a further escalation of geopolitical tensions in the Middle East and weighs on investors’ sentiment. This is evident from a generally weaker tone around the equity markets and lends some support to the safe-haven precious metal.
Meanwhile, the flight to safety, along with hopes of a soft landing for the US economy, drags the US Treasury bond yields lower and fails to assist the US Dollar (USD) to break through a nearly two-week-old trading range. This is seen as another factor acting as a tailwind for the Gold price. That said, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) in 2024 cap the upside for the non-yielding yellow metal. Traders also seem reluctant and prefer to wait for the outcome of a two-day FOMC monetary policy meeting on Wednesday.
Daily Digest Market Movers: Gold price benefits from deepening Middle East conflict, softer US bond yields
- The risk of a further escalation of geopolitical tensions in the Middle East weighs on investors’ sentiment and lends support to the safe-haven Gold price on the first day of a new week.
- A drone attack on a US base in Jordan killed three US soldiers, marking the first death of US service personnel in the region since the Hamas-Israel war broke out on October 7.
- President Joe Biden doubled down on his pledge of reprisals and said that the US shall respond and hold all those responsible to account at a time and in a manner of our choosing.
- The US Dollar (USD) holds steady just below a one-month peak as investors continue to scale back their expectations for a more aggressive easing by the Federal Reserve.
- Data released on Friday, however, showed that inflation rose modestly in December and reaffirmed expectations that the Fed will start cutting interest rates by the middle of 2024.
- The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December.
- Meanwhile, the annual Core PCE Price Index – considered the Fed’s preferred gauge of inflation – decelerated more than expected, to 2.9% from 3.2% in November.
- Other details of the publication showed that Personal Spending rose 0.7% in December while Personal Income grew 0.3%, pointing to strong demand from US consumers.
- This comes on top of the stronger US Q4 GDP print earlier last week and suggested that the economy is still in good shape, further fuelling optimism about a soft landing.
- A modest decline in the US Treasury bond yields keeps a lid on any further gains for the Greenback and might continue to act as a tailwind for the non-yielding yellow metal.
- Traders might also prefer to wait for the FOMC meeting starting on Tuesday and this week’s key US macro data, including the Nonfarm Payrolls (NFP) report on Friday.
Technical Analysis: Gold price remains below 50-day SMA pivotal barrier, $2,040-2,042 supply zone holds the key
From a technical perspective, any subsequent move beyond the 50-day SMA hurdle, currently around the $2,027-2,028 region, might continue to attract some sellers near the $2,040-2,042 supply zone. A sustained strength beyond the latter could trigger a short-covering rally and lift the Gold price further to the $2,077 intermediate hurdle en route to the $2,100 round-figure mark.
On the flip side, immediate support is pegged near the $2,012-2,010 area ahead of the $2,000 psychological mark. Some follow-through selling will be seen as a fresh trigger for bearish traders and expose the 100-day SMA, currently near the $1,977-1,976 area. The Gold price could eventually drop to test the very important 200-day SMA, near the $1,964-1,963 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.03% | -0.08% | -0.07% | -0.26% | -0.06% | -0.13% | -0.11% | |
EUR | 0.03% | -0.04% | -0.03% | -0.22% | -0.01% | -0.10% | -0.08% | |
GBP | 0.08% | 0.04% | 0.00% | -0.18% | 0.03% | -0.06% | -0.03% | |
CAD | 0.06% | 0.02% | -0.02% | -0.19% | 0.02% | -0.06% | -0.04% | |
AUD | 0.25% | 0.19% | 0.16% | 0.17% | 0.18% | 0.11% | 0.15% | |
JPY | 0.06% | 0.02% | 0.13% | -0.01% | -0.18% | -0.10% | -0.05% | |
NZD | 0.13% | 0.10% | 0.06% | 0.06% | -0.11% | 0.05% | 0.02% | |
CHF | 0.10% | 0.06% | 0.03% | 0.04% | -0.13% | 0.05% | -0.01% |
RISK SENTIMENT FAQS
What do the terms”risk-on” and “risk-off” mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is “risk-on”?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is “risk-off”?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.