- Gold retreats modestly amid mixed signals from the US economy and an improvement in risk appetite.
- Recent US GDP figures fell short of expectations, while inflation metrics remain unchanged, influencing Fed’s upcoming policy decisions.
- Attention now turns to the US Federal Reserve’s monetary policy decision on May 1 and forthcoming Nonfarm Payrolls data.
Gold’s price snaps two days of gains, yet it remains within familiar levels, with traders bracing for the US Federal Reserve’s (Fed) monetary policy decision on May 1. Last week, data from the United States (US) showed that Gross Domestic Product (GDP) missed the mark, while the Fed’s preferred gauge for inflation, the Core Personal Consumption Expenditure Price Index (PCE), stalled for the second straight month at 2.8% YoY.
The XAU/USD retreats below the daily open and trades at $2,334, down 0.11%, courtesy of an improvement in risk appetite, lower US Treasury yields, and a weak US Dollar (USD). The Fed is expected to keep interest rates on hold following Fed Chairman Jerome Powell’s remarks in which he said the current monetary policy stance is appropriate due to the lack of progress on curbing inflation. Besides that, Investors will be eyeing the release of US Nonfarm Payrolls figures on Friday.
Daily digest market movers: Gold price climbs amid tumbling US yields
- Gold’s gains are sponsored by the drop in US Treasury yields and a soft US Dollar. The US 10-year Treasury bond yield dropped five basis points (bps) to 4.612%, a tailwind for the non-yielding metal. At the same time, the Greenback, as measured by the US Dollar Index (DXY), surrendered below 106.00, falling 0.43% to trade at 105.63.
- Last week’s softer than expected Gross Domestic Product (GDP) was overshadowed by the jump in the core Personal Consumption Expenditure Price Index (PCE) for Q1 2024 to 3.7%. Even though that spooked investors to price out the Federal Reserve’s interest rate cuts for 2024, the monthly reading of the core PCE at 2.8% YoY relieved traders, sparking an improvement in market mood.
- On May 3, the US Bureau of Labor Statistics (BLS) is expected to reveal April’s Nonfarm Payrolls figures, which are expected to come at 243K, below March’s 303K. The Unemployment Rate is estimated to stay unchanged at 3.8%, while Average Hourly Earnings (AHE) would likely remain unchanged at 0.3% MoM.
- Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.035%, down from 5.050% last Friday.
Technical analysis: Gold price consolidates around $2,330
Gold price remains upwardly biased, though to extend its gains, buyers need to reclaim the April 26 high of $2,352, so they can remain hopeful of challenging higher prices. The next resistance would be the $2,400 mark, followed by the April 19 high at $2,417 and the all-time high of $2,431.
On the flip side, if the XAU/USD price dips below the April 15 daily low of $2,324, that would pave the way to test $2,300. A breach of the latter would expose the April 23 low of $2,229, followed by the March 21 high at $2,222.
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.
