By Rania Gule Market Analyst at XS.com
The price of gold (XAU/USD) dropped to $2020 during early trading today, Monday, due to the modest recovery of the US dollar. This was supported by robust Purchasing Managers’ Index (PMI) data for the services sector, impacting the price of gold. However, the upward trend of the dollar may be limited as markets anticipate a 75-basis-point interest rate cut in the coming year, favoring a stronger dollar.
In the past week, the Federal Reserve kept interest rates unchanged at 5.25-5.50% in its latest meeting, emphasizing its goal of curbing inflation by the end of 2023, with no planned interest rate hikes in 2024. I believe gold started the new week positively, holding onto modest gains despite a lack of upward momentum. Key Federal Reserve officials attempted to temper expectations regarding early interest rate cuts. In my view, this strong sentiment may contribute to risk appetite in global stock markets, limiting the upward trend of gold, considered a haven.
However, investors are eagerly awaiting important data, leading to a sideways market before the release of the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, next Friday. This will significantly influence market expectations regarding the timing of the Fed’s policy easing, providing real momentum to stimulate the economy. This supports the strength of non-yield-bearing gold.
Markets widely expect interest rates to be lowered at least three times by 25 basis points each in 2024. Thus, the core inflation reading in the United States will impact market expectations for the timing of the Fed’s easing, potentially pushing the US dollar to its lowest level in four months, and acting as a supporting force for gold in the medium term.
I also believe that geopolitical risks and concerns about a deep economic contraction, especially in China and the Eurozone, are additional factors supporting modest gold gains as a haven. At the same time, the fundamental outlook appears to favor continued growth, indicating that the path of least resistance for the XAU/USD pair is upward. Any corrections could be seen as buying opportunities for gold in the absence of any market-moving US economic data today, Monday.
Looking ahead, markets will watch for more signals about the Fed’s future monetary policy direction, such as the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, scheduled for release next Friday. Building permits and housing starts in the United States will be released tomorrow, Tuesday, followed by the Annual Gross Domestic Product (GDP) for the third quarter (Q3) on Wednesday. In my opinion, these numbers will provide a clear direction for gold prices in the medium and long term.