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Gold Loses Its Day-To-Day Gains Despite Strong Bets That Rates Will Go Down

Leon Kramer

ByLeon Kramer

Dec 31, 2023

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  • The price of Gold has experienced a slight decline in its intraday gains due to a rebound in US Treasury yields.
  • The overall sentiment towards the Gold price is positive, as the Federal Reserve may adjust its policy stance to be less restrictive shortly.
  • The USD Index is showing signs of a potential rebound as market participants begin to analyze the implications of the Federal Reserve’s decision to lower interest rates.

The price of Gold, specifically the XAU/USD pair, experienced a decline on Thursday following a recent peak that lasted for three weeks. The cost of the precious metal declined due to profit-taking following a significant increase in value over the past two weeks. The rise in US Treasury yields has increased the opportunity cost of holding non-yielding metals. 

The Gold price is anticipated to maintain a positive outlook due to investor expectations of the Federal Reserve (Fed) lowering interest rates starting in March, coupled with an apparent decline in underlying inflation. The US Dollar is experiencing a consistent decrease in value due to expectations of early interest rate cuts. This is causing the value of precious metals priced in US Dollars to remain stable.

Contrary to the expectations of investors, Federal Reserve policymakers believe that there is a strong possibility of a market response to the comments made by Federal Reserve Chairman Jerome Powell regarding rate cuts.

Federal Reserve policymakers have expressed caution regarding cutting interest rates, deeming them premature given the current circumstances. This caution stems from a lack of confidence in the ability of inflation to decrease to the desired level of 2%.

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In the latest update, the US Department of Labor has released the figures for Initial Jobless Claims (IJC) about the week ending December 22. The number of individuals who filed for unemployment benefits increased to 218,000, higher than the expected consensus of 210,000 and the previous reading of 206,000. 

As Us Rates and the Dollar Bounce, the Price of Gold Continues to Fall

  • The price of Gold is experiencing slight downward pressure due to an increase in US Treasury yields. The yields on 10-year US Treasury bonds have experienced a recovery, reaching a level close to 3.82%.
  • The price of Gold continued to rise for the fourth consecutive day as market participants anticipated a potential interest rate reduction by the Federal Reserve in March 2024.
  • It is anticipated that the Federal Reserve will initiate a decrease in interest rates due to a decline in inflation within the United States economy.
  • As indicated by the CME Fedwatch instrument, traders now show a more than 88 percent chance for the Federal Reserve to decrease rates in March. It is likely, with a likelihood that is greater than sixty-five percent, that the Federal Reserve will reduce prices even further during May.
  • The market mood that is in favor of the Federal Reserve’s likely decision to adopt fast rate reduction looks to be strong, especially considering the fall in the underlying inflation rate to 3.2% for Nov. Following the most recent forecasts made by the Federal Reserve, they have predicted that a particular figure will be attained by the time the month of December 2023 comes to a close.
  • As we approach 2024, the future movement of the Gold price will depend on whether investors have already factored in the potential impact of rate cuts or if there are indications of economic contraction that suggest current prices are reasonable.
  • There is a consensus among a group of investors and Federal Reserve policymakers that investors may have overestimated the likelihood and impact of future interest rate cuts. The US Dollar Index (DXY) has experienced a noticeable decline of 6.31% since reaching its peak of 107.35 in October.
  • It is anticipated that the USD Index will conclude the year with a decline of approximately 2.5%. This projection is based on the belief that the Federal Reserve will likely be the initial prominent central bank to implement interest rate reductions. However, it is anticipated that other economies in the Western world will also begin to decrease their interest rates due to the global easing of price pressures.
  • Unlike other economies susceptible to economic downturns, the US economy can withstand and recover from adverse conditions. The robust economic outlook may contribute to sustained inflationary pressures exceeding the target rate of 2%.
  • The FX market may experience some activity this week due to the release of second-tier weekly Initial Jobless Claims data for the week ending December 22.
  • Market participants expect an increase in the number of individuals claiming jobless benefits to reach 210K, slightly higher than the previous reading of 205K.

The Price of Gold Has Dropped From Its Last Three-Week High

The price of Gold experienced a gradual decline following a recent peak of $2,090, which marked a three-week high. The long-term outlook for the Gold price remains positive as investors anticipate that the expense of retaining non-yielding bullion will decrease due to declining interest rates.

The price of the precious metal is expected to continue its upward trend, as indicated by the positive slope of the 20 and 50-day Exponential Moving Averages (EMAs). The momentum oscillators have transitioned into a bullish range, suggesting a potential increase in value shortly.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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