Gold price exposed to more upside as Fed turns dovish

• Gold price is aiming to deliver more gains as the Fed surprisingly turns dovish.
• The Fed is expected to achieve a ‘soft landing’ amid stable labor market projections.
• US core PCE is seen declining to 2.4% and 2.2% in 2024 and 2025 respectively.

Gold price (XAU/USD) extended its recovery on Thursday as dovish guidance from the Federal Reserve (Fed) turns its fundamentals supportive, potentially for the long term. 

The precious metal is expected to add more gains as new projections from the Fed endorse more rate cuts than previously estimated, due to significant progress in inflation declining towards 2%, a stable job market, and reduced inflation projections.

Despite rate cut projections and lower inflation guidance, Fed Chair Jerome Powell didn’t announce victory over inflation. However, a ‘soft landing’ by the Fed is widely anticipated as it is expected to achieve price stability without impacting the labor market and triggering a recession. 

Daily Digest Market Movers: Gold price eyes more upside as US yields fall sharply

• Gold price faces nominal pressure while extending a weekly high near $2,040 on Thursday.
• The broader appeal of Gold price is bullish as Fed Chair Jerome Powell surprisingly delivered a dovish guidance on Wednesday.
• Jerome Powell discussed cutting interest rates in 2024 after keeping interest rates unchanged in the range of 5.25-5.50% consecutively for the third monetary policy.
• The decision to hold interest rates steady was widely anticipated. It was the mention of lowering borrowing costs in 2024, while announcing new economic projections that fueled demand for risk-sensitive assets and bullions.
• Powell’s commentary indicated that the rate-tightening campaign by the Fed has come to an end amid progress in inflation declining towards 2%.
• As per the Fed’s new Summary of Economic Projections (SEP), the core Personal Consumption Expenditure (PCE), which strips out Oil and food prices, and is considered a better gauge for underlying inflation, is seen easing to 3.2% by the end of 2023 from the prior estimate of 3.7%.
• For 2024 and 2025, the core PCE is seen easing to 2.4% and 2.2% from former projections of 2.6% and 2.3%.
• For interest rate projections, the Fed sees borrowing rates lowering to 4.6% in 2024 through three rate cuts against prior forecasts of 5.1% and two rate cuts. For the year 2025, interest rates are seen declining to 3.6% against the 3.9% projected earlier.
• Fed’s outlook for the Unemployment Rate remained unchanged at 4.1% for 2024 and 2025.
• Despite announcing more rate cuts in coming years, Powell refrained from declaring complete victory over inflation. He said, “It would be premature, and we can't be guaranteed in this progress."
• Meanwhile, a sustained decline in inflation in the US economy along with an unchanged outlook for the labor market indicates that the Fed will manage to achieve a ‘soft landing’.
• The US Dollar Index (DXY) dropped to near a five-month low of around 102.45 after the sudden dovish stance shift by the Fed.
• Meanwhile, 10-year US Treasury yields fell sharply below 4% due to improved risk-taking capacity of the market participants.
• For further action, investors await the monthly US Retail Sales for November, which will be published at 13:30 GMT. The overall consumer spending is seen declining by 0.1% - a similar pace to that recorded in October.
• On Friday, preliminary S&P Global PMI data will keep investors busy. As per the consensus, the Manufacturing PMI is seen slightly down to 49.3 against the prior release of 49.4. The Services PMI is expected to fall by 20 basis points (bps) to 50.6 but will remain above the 50.0 threshold.

Technical Analysis: Gold price aims at $2,040

Gold price trades near a weekly high around $2,040 after recovering from the 50-day Exponential Moving Average (EMA). The precious metal is expected to extend recovery to near the crucial resistance of $2,050. Major resistances for the Gold price are $2,100 and $2,150 respectively.

The Relative Strength Index (RSI) (14) has rebounded to near 60.00. If the RSI (14) manages to climb above 60.00, Gold bulls will strengthen further.