Gold price trades below two-week high amid Fed’s higher-for-longer narrative

• Gold price regains some positive traction amid geopolitical risks and subdued USD demand.
• The Fed’s hawkish outlook remains supportive of elevated US bond yields and caps gains.
• A sustained strength beyond the 50-day SMA is needed for bulls to seize near-term control.

Gold price (XAU/USD) attracts some dip-buying during the Asian session on Friday and remains within the striking distance of a nearly two-week high touched the previous day. The conflict in the Middle East has shown no signs of de-escalation, which, along with a modest US Dollar (USD) downtick, turns out to be key factors lending some support to the safe-haven commodity. That said, growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer amid concerns over sticky inflation and persistent strength in the US economy might continue to act as a headwind for the non-yielding yellow metal.

In fact, the minutes of the late January FOMC meeting revealed that policymakers were concerned about cutting interest rates too quickly. Furthermore, comments by a slew of influential Fed officials suggested that the central bank was in no hurry to ease its monetary policy. This remains supportive of elevated US Treasury bond yields and favours the USD bulls. Apart from this, the prevalent risk-on mood across the global equity markets could contribute to capping the upside for the Gold price. Hence, bulls might wait for a sustained strength beyond the 50-day Simple Moving Average (SMA) before placing fresh bets.

Daily Digest Market Movers: Gold price attracts some haven flows amid a softer US Dollar

• Israel intensified its bombardment on Gaza's Rafah, while Yemen's Iran-aligned Houthis rebels stepped up attacks on ships in the Red Sea, raising the risk of a wider war in the Middle East and underpinning the safe-haven Gold price.
• The US Dollar struggles to capitalize on the previous day's goodish rebound from its lowest level in almost three weeks and lends additional support to the XAU/USD, though the Federal Reserve's hawkish outlook might cap gains.
• Minutes of the latest FOMC policy meeting released on Wednesday pointed to a broad uncertainty about how long borrowing costs should remain at their current level to bring down inflation back to the central bank's 2% target.
• Fed Vice Chair Philip Jefferson thinks that the central bank could begin to cut rates later this year, though said that he will be looking across a broad set of economic indicators for conviction that it is time to lower borrowing costs.
• Meanwhile, Philadelphia Fed President Patrick Harker noted that the central bank is getting close to cutting rates but a move in the near term is unlikely and emphasized that he doesn’t want to cut too early and re-ignite inflation.
• Separately, Fed Governor Lisa Cook noted that it is not yet time to reduce interest rates as the path towards the 2% inflation goal has been and could still be bumpy and uneven, citing the recent stronger consumer inflation figures.
• Furthermore, Fed Governor Christopher Waller said that policymakers should delay rate cuts by at least another couple more months to see if the hot inflation print in January was just a speed bump in the road towards price stability.
• As per the CME Group's FedWatch Tool, the markets are pricing in around a 30% chance that the Fed will start cutting interest rates in May, while the odds for a move at the June FOMC policy meeting currently stand at about 66%.
• Data released on Thursday showed that the number of Americans applying for unemployment insurance benefits fell from 213K to 201K during the week ending February 17, offering fresh signs of strength in the labor market.
• The yield on the benchmark 10-year US government bond holds steady near its highest level since late November, acting as a tailwind for the Greenback and capping the non-yielding yellow metal amid the prevalent risk-on mood.
• The better-than-expected release of the flash Eurozone PMI prints suggested that the downturn in the business activity eased in February, which further boosts investors’ sentiment and should contribute to keeping a lid on the XAU/USD.

Technical Analysis: Gold price bulls still await a sustained breakout through the 50-day SMA

From a technical perspective, the 50-day SMA, currently pegged near the $2,032 area, followed by the $2,035 region, or a nearly two-week high touched on Thursday, could act as an immediate hurdle. Given that oscillators on the daily chart have just started gaining positive traction, a sustained strength beyond the said barrier has the potential to lift the Gold price towards the $2,044-2,045 intermediate resistance en route to the $2,065 supply zone.

On the flip side, the $2,020-2,019 area now seems to have emerged as an immediate support. This is followed by the 100-day SMA, around the $2,000 psychological mark, which if broken decisively will expose the monthly low, around the $1,984 region. The subsequent downfall could drag the Gold price further towards challenging the very important 200-day SMA support near the $1,966-1,965 zone.