Gold price trims a part of intraday gains to multi-month top; bullish bias remains
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Haresh Menghani
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22 Jan @ 04:03 (GMT+0)

Gold price trims a part of intraday gains to multi-month top; bullish bias remains

  • Gold price scales higher for the third straight day amid the global flight to safety.
  • Bets for more rate cuts by the Fed also benefit the non-yielding yellow metal.
  • A modest USD bounce and the risk-on mood cap gains for the XAU/USD pair. 

Gold price (XAU/USD) retreats slightly from the $2,758-2,759 region, or the highest level since November 1, though it holds in positive territory for the third successive day through the early European session on Wednesday. The upbeat market mood, along with rebounding in the US Treasury bond yields and a modest US Dollar (USD) recovery from a two-week low, turn out to be key factors acting as a headwind for the commodity. 

That said, bets that the Federal Reserve (Fed) will cut rates twice this year could cap the US bond yields and the USD, which, in turn, remains supportive of the bid tone surrounding the non-yielding yellow metal. Furthermore, concerns about US President Donald Trump's threatened tariffs might continue to drive haven flows towards the precious metal and support prospects for an extension of over a one-month-old uptrend.

Gold price bulls turn cautious amid rebounding US bond yields, modest USD strength and risk-on mood

  • Hours after taking the oath, US President Donald Trump said that he intends to impose 25% tariffs on Canada and Mexico, and the target date for tariffs would be as soon as early February. 
  • Trump's tariff remarks sparked concerns about a fresh wave of global trade war, boosting demand for safe-haven assets and lifting the Gold price to its highest level since early November. 
  • Signs of abating inflation in the US revived bets that the Federal Reserve may not exclude the possibility of rate cuts by the end of this year, which dragged the US Treasury bond yields lower. 
  • This, along with the Israel-Hamas ceasefire agreement, and hopes that Trump might relax curbs on Russia in exchange for a deal to end the Ukraine war, remain supportive of the risk-on mood.
  • The US Dollar gains some positive traction during the Asian session on Wednesday and moves away from a two-week trough that was retested on Tuesday, which might cap gains for the XAU/USD. 
  • Investors now look forward to the highly-anticipated Bank of Japan decision on Friday, which could infuse volatility in the financial markets and influence the safe-haven precious metal.
  • Apart from this, the flash PMI prints would offer a fresh insight into the global economic health and provide some meaningful impetus to the commodity during the latter half of the week. 

Gold price dip-buying should help limit the downside near the $2,725-2,720  resistance-turned-support

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From a technical perspective, the overnight breakout through the $2,720 supply zone was seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, a subsequent strength beyond the $2,748-2,750 hurdle should pave the way for additional gains. The Gold price might then aim towards challenging the all-time peak, around the $2,790 area touched in October 2024.

On the flip side, any corrective pullback might now be seen as a buying opportunity and remain limited near the $2,725-2,720 region. The next relevant support is pegged near the $2,700-2,690 area, which if broken decisively might prompt aggressive technical selling and drag the Gold price to the $2,660 zone en route to the $2,625 confluence. The latter comprises the 100-day Exponential Moving Average (EMA) and an ascending trend-line extending from the November swing low, which, in turn, should act as a key pivotal point and help determine the next leg of a directional move for the XAU/USD.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.