Gold Retraces as Fed Rate Cut Expectations Face Reality Check


Gold Market

In a recent turn of events, the Gold market saw a pullback from the $2,070 level as markets entered the holiday season. The retracement came after a surge driven by investor anticipation of faster and more frequent Federal Reserve (Fed) rate cuts. Let’s break down the key factors influencing this shift.

Fed’s Dilemma: High Rates and Market Expectations

Fed’s Interest Rate at 22-Year High: The Federal Reserve’s main interest rate reached a 22-year high, sparking eagerness in markets for rate cuts to stimulate economic growth.

Over-Optimistic Expectations: Investors are betting on an accelerated pace of Fed rate cuts in 2024. However, the Fed’s own projections suggest a more conservative approach, with a median forecast of 75 basis points in rate cuts through 2024.

US Inflation and Its Role in Gold Movement

Easing US Inflation: Receding US inflation is a pivotal factor, applying downward pressure on the US Dollar and prompting investors to bid up Spot Gold.

Data Check: The US Annualized Core PCE Price Index in November grew by 3.2%, slightly below expectations. This decline from the previous period’s 3.4% adds weight to the argument for potential rate cuts.

Market Dynamics and Gold’s Rollercoaster Ride

Market Pricing vs. Fed Expectations: Markets are pricing in more aggressive rate cuts than the Fed’s dot plot suggests. Some participants are even eyeing a rate cut as soon as March, potentially contributing to the recent volatility in Gold prices.

Holiday Market Break: As the year-end approaches, Friday’s trading saw a reversal as the US Dollar recovered, causing Gold to retreat. Market participants are adjusting positions amid the last full trading week of 2023.

Technical Analysis: XAU/USD Trends

Recent Movement: Gold’s climb over 1.10% on Friday was a last-minute surge before encountering resistance at $2,070 and retracing toward $2,050.

Intraday Strength: Intraday action has been well-bid, surpassing the 200-hour Simple Moving Average (SMA) since breaking above it near $2,020.

Long-Term Support: A higher-lows pattern on daily candles since October, supported by the 200-day SMA at $1,960, indicates robust long-term technical support.

Conclusion: December’s rally into all-time highs has left Gold bids stranded in bull country, but for bearish patterns to emerge, XAU/USD needs to fall below the $2,000 major handle. As markets navigate the holiday break, the Gold market remains dynamic, responding to a delicate balance of Fed policy expectations, US economic indicators, and technical trends. Investors are advised to stay vigilant amid potential shifts in market sentiment.

Also Read: Adani Group Secures $6 Billion Global Investments, Boosting Market Confidence

Check Latest On IPO Watch


CurrencyVeda provides this news article for informational purposes only. We do not offer investment advice or recommendations. Before making any investment decisions, please conduct thorough research, consult with financial experts, and carefully consider your financial situation, risk tolerance, and investment goals. Investing in the stock market carries risks, and it’s essential to make informed choices based on your individual circumstances. CurrencyVeda is not liable for any actions taken based on the information provided in this article.