Gold prices (XAU/USD) made a modest recovery today, Thursday, after falling to their lowest level in a week and a half earlier this week. This comes in the wake of rising U.S. Treasury yields and a stronger U.S. dollar.
However, U.S. bond yields started losing momentum minutes after the Federal Reserve‘s meeting last December 12 and 13. The meeting reflected a consensus among policymakers that inflation is under control and that downside risks to the economy are associated with an overly restrictive stance. This allowed gold to attract some buyers near the $2,030 price point earlier in today’s trading session.
The Fed’s meeting minutes provided no clues about when it would begin cutting interest rates. However, Thomas Barkin, CEO of the Federal Reserve Bank of Richmond recently stated that interest rate hikes are still possible. This will lead to a modest uptick in the U.S. treasury bond yields, which is seen as a major driver for the U.S. dollar. With the rise of the greenback, gold prices will likely not witness any further gains.
Therefore, traders are seeking more clarity on the Federal Reserve’s policy outlook. Hence, the focus will remain on releasing the closely watched U.S. monthly employment details, known as the Non-Farm Payrolls (NFP) report on Friday.
U.S. economic agenda
The U.S. economic docket on Thursday included the ADP report on private-sector employment and the usual Initial Jobless Claims. The outcomes will be looked at for short-term trading opportunities later during the early North American session. However, doubts about the possibility of the Fed cutting interest rates early may continue to prevent traders from placing bets on prices of non-yielding gold. This in turn requires some caution before ensuring that the week-long downtrend in gold prices has run its course.
Therefore, bets that the Fed will cut interest rates in March and geopolitical tensions are helping gold prices rebound from a one-week low.
The December Federal Open Market Committee (FOMC) meeting minutes revealed that members generally viewed adding ‘any’ to the statement as a sign that interest rates are likely close to peaking.
Policymakers noted progress on inflation. However, they recognized that conditions may justify keeping interest rates unchanged for longer than expected. Furthermore, the minutes did not provide direct evidence about when a series of interest rate cuts might begin in 2024. On Wednesday, Barkin expressed confidence that the U.S. economy was heading to a soft landing.
Meanwhile, yields on the benchmark 10-year U.S. government bond remain steady below 4.0 percent. This would act as a tailwind for the U.S. dollar and put a cap on prices of non-yielding yellow gold.
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