Gold price remains upbeat against US Dollar

WORLD  27 February 2024 - 19:30

Gold price (XAG/USD) exhibits strength against the US Dollar in February 27 European session on hopes that the Federal Reserve (Fed) will eventually bring interest rates down.

However, the upside in the precious metal seems capped as Fed policymakers lean towards maintaining interest rates higher for longer to build downward pressure on sticky inflation, according to FX Street.

Non-yielding assets, such as Gold, attract higher inflows when investors believe the Fed will eventually begin to roll back its restrictive interest rate stance. Spot prices of Gold are up by 0.23 per cent at $2,036.

Fed policymakers underpin a wait-and-watch approach on interest rates, citing that risks associated with premature rate cuts are higher than postponing them. The Fed is expected to avoid considering rate cuts until it gets evidence that inflation will fall sustainably to the two per cent target.

This week, the US Dollar will be guided by the United States core Personal Consumption Expenditure – Price Index (PCE) data, which will be published on February 29. Fed policymakers consider the underlying inflation data before preparing remarks on interest rates. The degree of change in the core PCE inflation data would influence market expectations for rate cuts.

Daily Digest Market Movers: Gold price advances while US Dollar corrects

Gold price rises sharply to $2,040 as the US Dollar falls onto the backfoot.

The precious metal climbs to almost a three-week high even though investors remain uncertain about rate cuts by the Federal Reserve (Fed).

All Fed policymakers have argued against premature rate cuts as they could flare up price pressures again.

Also, policymakers still gather evidence to confirm that inflation will decline sustainably to the two per cent target.

On February 26, Kansas City Federal Reserve Bank President Jeffrey Schmid said a tight labor market, considerable momentum in households’ demand, and inflation above two per cent leave no room for an aggressive adjustment in the monetary policy stance.

As per the viewpoint of Jeffrey Schmid, the Fed needs to be patient and observe how the economy responds to policy tightening. The rate cuts could be announced only after gaining confidence that a victory can be announced against sticky inflation.

This week, the array of the United States economic data will direct further action in the Gold price.

US Durable Goods Orders, second estimates for Q4 Gross Domestic Product (GDP), and core PCE price index data are lined up for release.

The US Durable Goods Orders for January are anticipated to have contracted sharply by 4.5 per cent against a stagnant performance in December. Weak demand for Durable Goods indicates a soft outlook for core inflation.

Investors will majorly focus on the core PCE price index, which could meaningfully influence the expectations for rate cuts by the Fed.

The expectations from investors show that the core PCE price index data rose by 0.4 per cent on a month-on-month basis against a 0.2 per cent increase in December. In the same period, the annual inflation data is expected to have decelerated to 2.8 per cent from 2.9 per cent.

Technical Analysis: Gold price aims to capture $2,040

Gold price approaches the downward-sloping border of the Symmetrical Triangle pattern, which is plotted from the December 28 high at $2,088. The upward-sloping border of the chart pattern is placed from the December 13 low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.

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