Gold price defends $2,600 ahead of FOMC minutes; not out of the woods yet

26 Nov 2024, 03:59 by Haresh Menghani · FXStreet

Gold price struggles to capitalize on its modest bounce from a one-week low.
Rebounding US bond yields underpin the USD and weigh on the XAU/USD.
Traders now look to FOMC meeting minutes for some meaningful impetuses.

Gold price (XAU/USD) retains its negative bias for the second straight day and trades just above a one-week low during the first half of the European session on Tuesday. The growing conviction that US President-elect Donald Trump's expansionary policies will reignite inflation and limit the scope for the Federal Reserve (Fed) to cut interest rates further triggers a fresh leg up in the US Treasury bond yields. This helps revive the US Dollar (USD) demand and turns out to be a key factor denting demand for the non-yielding yellow metal.

Furthermore, the latest optimism over Scott Bessent's nomination as the US Treasury secretary and a possible Israel-Hezbollah ceasefire deal contribute to driving flows away from the safe-haven Gold price. The fundamental backdrop supports prospects for a further depreciating move for the XAU/USD, though Trump's tariff threat and geopolitical risks stemming from the Russia-Ukraine conflict might help limit losses. Traders also await the FOMC minutes for cues about the future rate-cut path and before positioning for any further depreciating move.

Gold price languishes near one-week low amid expectations for a less dovish Fed

The optimism over Scott Bessent's nomination as the US Treasury secretary and the Israel-Hezbollah ceasefire deal weighed heavily on the safe-haven Gold price at the start of a new week.
Hopes that Bessent will take a more phased approach on tariffs in an attempt to rein in the budget deficit triggered a sharp fall in the US Treasury bond yields and undermined the US Dollar.
The yield on the benchmark 10-year US government bond dropped by the most since early August, though the downfall remains limited amid bets for a less dovish Federal Reserve.
Chicago Fed President Austan Goolsbee said on Monday that barring some convincing evidence of overheating, he foresees the central bank continuing to lower rates.
Separately, Minneapolis Fed President Neel Kashkari said that it is still appropriate to consider another interest-rate reduction at the December FOMC policy meeting.
Traders, however, continue scaling back their bets for another 25-basis-points Fed rate cut in December amid expectations that Trump's policies will boost inflation.
This acts as a tailwind for the US bond yields and assists the USD to fill the weekly bearish gap, which might cap any meaningful upside on the non-yielding yellow metal.
US President-elect Donald Trump threatened to impose a 25% tariff on all products coming into the US from Mexico and Canada and an additional 10% tariff on all Chinese imports.
Meanwhile, Israeli forces have intensified operations in north Gaza in recent weeks and continue to hammer Lebanon, raising the risk of a further escalation of conflict.
Adding to this, worries about the economic impact of increased duties temper investors' appetite for riskier assets and drive some haven flows towards the XAU/USD.
Market players now look to the FOMC minutes for cues about the future rate-cut path, which will drive the USD demand and provide a fresh impetus to the commodity.
This week's US economic docket also features the first revision of the US Q3 GDP print and the release of the US Personal Consumption and Expenditure (PCE) Price Index.

Gold price could challenge 100-day SMA support once the $2,600 mark is broken decisively

From a technical perspective, the intraday bounce from the 61.8% Fibonacci retracement level of the recent recovery from a two-month low is likely to face stiff resistance near the $2,650 confluence. The said area comprises the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibo. level, which, in turn, should act as a key pivotal point. A sustained strength beyond could trigger a short-covering rally towards the $2,700 mark en route to the overnight swing high, around the $2,721-2,722 zone.

On the flip side, the $2,600 round figure (61.8% Fibo. level) might continue to protect the immediate downside. Some follow-through selling will expose the 100-day SMA, currently pegged near the $2,565 region. The subsequent decline has the potential to drag the Gold price towards the monthly swing low, around the $2,537-2,536 area. A convincing break below the latter will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent sharp retracement slide from the $2,800 neighborhood, or the all-time peak touched in October.

Economic Indicator

FOMC Minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

Why it matters to traders?

Minutes of the Federal Open Market Committee (FOMC) is usually published three weeks after the day of the policy decision. Investors look for clues regarding the policy outlook in this publication alongside the vote split. A bullish tone is likely to provide a boost to the greenback while a dovish stance is seen as USD-negative. It needs to be noted that the market reaction to FOMC Minutes could be delayed as news outlets don’t have access to the publication before the release, unlike the FOMC’s Policy Statement.

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