Gold price rebounds despite the hawkish Fed
- Gold price is trading on a positive note despite the stronger USD on Friday.
- The higher-for-longer US rate narrative might weigh on the yellow metal in the near term.
- Investors will monitor the Fed’s Waller speech, US Durable Goods Order, and Michigan Consumer Sentiment Index report on Friday.
Gold price (XAU/USD) recovers some lost ground on Friday despite the stronger US Dollar (USD). The upside of yellow metal might be limited amid the diminishing bets of a rate cut in September from the US Federal Reserve (Fed) Nonetheless, the safe-haven flows amid the rising geopolitical tensions in the Middle East might lift the gold price.
Gold investors will take more cues from Fedspeak. The Fed’s Waller is set to speak on Friday. The hawkish remarks from the Fed policymakers might further weigh on the yellow metal. It’s worth noting that a higher rate generally hurts gold prices as it increases the opportunity cost of investing in the yellow metal. Apart from this, the US Durable Goods Order and Michigan Consumer Sentiment Index will be released.
Daily Digest Market Movers: Gold price retreats from record highs amid the Fed’s hawkish remarks
- The US Initial Jobless Claims fell by 8K to 215K for the week ending May 18. This figure came in lower than the expectation of 220K and the previous week’s reading of 223K.
- The flash US S&P Global Manufacturing PMI rose to 50.9 in May from 50.0 in April. The Services PMI climbed to 54.8 in May from the previous reading of 51.3. Both figures came in better than the estimation.
- The US S&P Global Composite PMI jumped to 54.4 in May from 51.3 in April, beating the market expectation of 51.1, the highest level since April 2022.
- Atlanta Fed President Raphael Bostic said that he still sees upward inflation pressure, adding the Fed may need to be more patient to avoid heating the economy.
- China’s private sector imported 543 tonnes of gold in Q1 2024, and the People’s Bank of China (PBoC) added another 189 tonnes to its reserves during the same period, according to the latest analysis by Gainesville Coins’ Jan Nieuwenhuijs.
- Gold imports to India, the world’s second-largest gold consumer, might decline by about a fifth in 2024 as high prices encourage retail customers to exchange old jewelry for new products, per Reuters.
Technical Analysis: Gold price’s bullish stance remains intact, with a Bearish Divergence in focus
Gold price trades on a weaker note on the day. The precious metal keeps the bullish vibe unchanged on the daily chart as it holds above the key 100-period Exponential Moving Average (EMA). However, the yellow metal has formed a bearish divergence as the price made higher highs on May 20, but the RSI indicator has formed lower highs, suggesting the momentum is slowing, and a correction or consolidation in price cannot be ruled out.
The upper boundary of Bollinger Band at $2,428 acts as an immediate resistance level for XAU/USD. A decisive break above this level could resume its climb to an all-time high of $2,450 en route to the $2,500 psychological barrier.
On the flip side, the first downside target will emerge at a low of May 13 at $2,285. Extended losses could take gold lower to the lower limit of the Bollinger Band at $2,267. Further south, the next contention level is seen at the 100-period EMA of $2,217.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.54% | -0.16% | 0.88% | 1.23% | 1.08% | 0.43% | 0.99% | |
| EUR | -0.54% | -0.69% | 0.34% | 0.70% | 0.55% | -0.10% | 0.47% | |
| GBP | 0.16% | 0.69% | 1.03% | 1.39% | 1.24% | 0.57% | 1.15% | |
| CAD | -0.89% | -0.35% | -1.03% | 0.35% | 0.21% | -0.45% | 0.13% | |
| AUD | -1.25% | -0.70% | -1.40% | -0.35% | -0.15% | -0.80% | -0.23% | |
| JPY | -1.09% | -0.56% | -1.24% | -0.19% | 0.15% | -0.65% | -0.08% | |
| NZD | -0.43% | 0.10% | -0.60% | 0.45% | 0.79% | 0.65% | 0.57% | |
| CHF | -1.02% | -0.47% | -1.17% | -0.13% | 0.23% | 0.08% | -0.57% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.