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Gold price remains on the defensive below 50-day SMA amid reviving USD demand

Summary:
Gold price remains confined in a narrow band heading into the European session.  Hawkish Fed expectations underpin the USD and act as a headwind for the metal. The downside seems limited ahead of the crucial US PCE Price Index on Thursday.  Gold price (XAU/USD) extends its sideways consolidative price move around the 50-day Simple Moving Average (SMA) on Wednesday as traders await fresh catalyst before positioning for the next leg of a directional move. Hence, the focus remains glued to the US Personal Consumption Expenditures (PCE) Price Index on Thursday, which will provide cues about the Federal Reserve’s (Fed) rate-cut path and drive the non-yielding yellow metal. In the meantime, the emergence of some US Dollar (USD) buying, bolstered by hawkish Federal

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  • Gold price remains confined in a narrow band heading into the European session. 
  • Hawkish Fed expectations underpin the USD and act as a headwind for the metal.
  • The downside seems limited ahead of the crucial US PCE Price Index on Thursday. 

Gold price (XAU/USD) extends its sideways consolidative price move around the 50-day Simple Moving Average (SMA) on Wednesday as traders await fresh catalyst before positioning for the next leg of a directional move. Hence, the focus remains glued to the US Personal Consumption Expenditures (PCE) Price Index on Thursday, which will provide cues about the Federal Reserve’s (Fed) rate-cut path and drive the non-yielding yellow metal.

In the meantime, the emergence of some US Dollar (USD) buying, bolstered by hawkish Federal Reserve (Fed) expectations, turns out to be a key factor acting as a headwind for the Gold price. Apart from this, the prevalent risk-on environment further contributes to capping the safe-haven precious metal. That said, a fresh leg down in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets and lend some support to the XAU/USD.

Traders now look to the release of the prelim US Q4 GDP print, due later during the early North American session. This, along with speeches by influential FOMC members, should provide some impetus to the Greenback and the Gold price. Apart from this, the broader risk sentiment might produce short-term trading opportunities. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets.

Daily digest market movers: Gold price continues with its struggle to gain any meaningful traction

  • A combination of diverging forces fails to provide any meaningful impetus to the Gold price, which extends its consolidative price move in a nearly one-week-old trading range.
  • The Federal Reserve’s higher-for-longer interest rates narrative lends some support to the US Dollar and continues to undermine the non-yielding yellow metal on Wednesday.
  • A fresh leg down in the US bond yields, along with the looming US government shutdown and Tuesday’s disappointing release of US Durable Goods Orders, should cap the USD.
  • US President Joe Biden emphasized the necessity of finding a solution to prevent a detrimental government shutdown on March 1 as a legislative logjam showed no signs of abating.
  • The US Census Bureau reported that orders for long-lasting US manufactured goods experienced a larger-than-expected decline of 6.1% in January, the most in nearly four years.
  • Meanwhile, the Conference Board’s Consumer Sentiment Index fell after three straight months of gains and came in at 106.7 for February, despite declining inflation expectations.
  • The Richmond Fed’s Manufacturing Index recorded the fourth successive month of a negative reading, though improved to -5 in February as compared to  -15 in the previous month.
  • Traders now look to the release of the Prelim US GDP print, which is expected to match the original estimates and show that the economy expanded by a 3.3% annualized pace in Q4.
  • This, along with speeches by influential FOMC members, will play a key role in driving the USD demand and producing some meaningful trading opportunities around the XAU/USD.
  • The focus, however, remains glued to the US Personal Consumption Expenditures Price Index on Thursday, which should provide fresh cues about the Fed’s rate-cut path.

Technical analysis: Gold price oscillates in a range around 50-day SMA, seems vulnerablw while below $2,040-42

From a technical perspective, the $2,041-2,042 area, or over a two-week high touched last Thursday, might continue to act as an immediate hurdle and cap gains for the Gold price. That said, a sustained strength beyond will confirm a break through the 50-day Simple Moving Average (SMA) barrier and pave the way for additional gains. Given that oscillators on the daily chart have just started gaining positive traction, the XAU/USD might then climb to the next relevant hurdle near the $2,065 region before aiming to reclaim the $2,100 round-figure mark.

On the flip side, the weekly trough. around the $2,025 region, now seems to protect the immediate downside ahead of the 100-day SMA, currently near the $2,011-2,010 area, and the $2,000 psychological mark. Some follow-through selling below the latter will shift the near-term bias back in favour of bearish traders and drag the Gold price to the $1,984 region en route to the very important 200-day SMA support near the $1,967 zone.

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 New Zealand Dollar.

USD EUR GBP CAD AUD JPY NZD CHF
USD 0.09% 0.09% 0.07% 0.33% -0.02% 1.03% 0.09%
EUR -0.07% 0.02% -0.01% 0.27% -0.10% 0.96% 0.01%
GBP -0.10% -0.02% -0.02% 0.25% -0.12% 0.94% -0.01%
CAD -0.07% 0.00% 0.02% 0.26% -0.10% 0.96% 0.04%
AUD -0.34% -0.27% -0.25% -0.27% -0.37% 0.70% -0.26%
JPY 0.02% 0.09% 0.11% 0.09% 0.36% 1.06% 0.11%
NZD -1.04% -0.99% -0.97% -0.98% -0.71% -1.08% -0.96%
CHF -0.09% 0.00% 0.00% -0.02% 0.22% -0.11% 0.94%

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).

Risk sentiment FAQs

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.

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.

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.

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.


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