Gold price (XAU/USD) shows some resilience below the $1,900 mark during the Asian session on Wednesday, albeit struggles to register any meaningful recovery from over a one-month low touched the previous day. A generally weaker risk tone lends some support to the safe-haven precious metal, though the prevalent strong bullish sentiment surrounding the US Dollar (USD) acts as a headwind.
Data released from the United States (US) on Tuesday showed that the Conference Board's Consumer Confidence Index fell to a four-month low in September. This fueled concerns that the consumers are feeling the pressure from the persistent high inflation and rising interest rates. Apart from this, worries about a real estate crisis in China – the world's second-largest economy – continues to weigh on investors' sentiment and benefits traditional safe-haven assets, including the Gold price.
Meanwhile, the USD Index (DXY), which tracks the Greenback against a basket of currencies, hits a fresh high since November 2022 and holds back bulls from placing aggressive bets around the XAU/USD. The Federal Reserve (Fed) last week struck a more hawkish tone, supporting prospects for further policy tightening. Moreover, the recent comments by several Fed officials reaffirm expectations for at least one more rate hike by the end of this year. This remains supportive of elevated US Treasury bond yields, which underpin the USD and caps the non-yielding Gold price.
Gold price now awaits a sustained break and acceptance below the $1,900 mark before traders start positioning for an extension of the recent rejection slide from the very important 200-day Simple Moving Average (SMA). Given that oscillators on the daily chart are holding deep in the negative territory, the XAU/USD might then accelerate the slide towards testing the August monthly swing low, around the $1,885-1,884 region.
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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