- Gold price falls back to $2,065 as hopes for deep Fed rate cuts start fading away.
- The Fed is expected to begin cutting interest rates in March 2024.
- Keep an eye on the US Employment and Manufacturing PMI data for the next economic triggers for the Gold price.
The Gold price (XAU/USD) has seen a correction, but we may see consolidation ahead due to thin trading activity. Overall, the precious metal is likely to remain on a positive trajectory, with bets in favor of early rate cuts by the Federal Reserve firming up due to easing labor market conditions and a clear downward trend in underlying inflation. This reduces the opportunity cost of holding gold and weakens the US Dollar, in which it is priced.Â
The Gold price is set to end 2023 with stellar gains of more than 13.50%. Deepening expectations for the Fed to start reducing interest rates from March 2024 will also keep appeal for the Gold price upbeat in 2024. Keep an eye on the United States Nonfarm Employment and ISM Manufacturing PMI for November for further action in the Gold price.
Daily Digest Market Movers: Gold price drops while US Dollar, yields recover
- Gold price falls further to near $2,063.00 as the US Dollar and Treasury yields have recovered further.
- The 10-year US Treasury yields have rebounded to near 3.90% and the US Dollar Index (DXY) has climbed to near 101.35.
- The broader appeal for non-yielding assets is bullish as Fed’s stance of higher for longer interest rates has lost its essence and investors are pricing in early rate cuts in 2024.
- As per the CME Fedwatch tool, there is a 73% chance that the Fed will reduce interest rates by 25 basis points (bps) to 5.00-5.25%. The probability that the Fed will continue reducing borrowing rates in May too is 72%.
- In addition, a clear declining trend in the underlying inflation towards 2%, further increases the chances the Fed may cut interest rates to avoid the consequences of overtightening.
- The scenario of long-lasting restrictive monetary policy could impact the economic outlook of the US economy.
- The US Department of Labor reported higher-than-projected Initial Jobless Claims (IJC) for the week ending December 22. Individuals who claimed jobless benefits for the first time were 218K, higher than the consensus of 210K and the former reading of 206K.
- The Fed has been maintaining an unchanged interest rates stance from the last three monetary policy meetings due to softening inflation and a slowdown in labor demand. A sustained restrictive monetary policy stance for longer could ease out resilience in the US labor market.
- While Fed policymakers are confident of a clear downtrend in price pressures, a restrictive policy stance would be maintained to ensure the achievement of price stability.
- Significant action in the FX domain is less likely on Friday amid the festive mood. However, next week, US Manufacturing PMI from the Institute of Supply Management (ISM) and the Employment data for November.
