Gold price clings to gains near $2,030 ahead of FOMC minutes

• Gold price extends upside amid increasing geopolitical uncertainty.
• The US Dollar rebounds ahead of the publication of the FOMC minutes.
• Fed’s Goolsbee said higher interest rates for a longer period can impact labor market conditions.

Gold price (XAU/USD) extends its winning spell to a fifth day on Wednesday as Federal Reserve (Fed) policymakers appear to be divided between the hit of higher interest rates on the United States economy and any possible inflation uptick due to the deepening crisis in the Red Sea.

Most Fed policymakers say that resilient economic indicators, which paint a picture of a robust labor market and strong consumer spending, have bought time to discuss more on rate cuts as these could flare up price pressures again. Chicago Fed Bank President Austan Goolsbee said last week that the outlook of interest rates is tied to the Fed’s confidence in inflation declining to 2%, but he also warned that high rates for an extended period could impact the employment side of the Fed’s dual mandate.

The Fed’s dual mandate is based on achieving full employment and inflation staying at around 2%. 

Goolsbee and other Fed policymakers said that inflation is on track to the central bank’s target of 2% despite the acceleration seen in January.

Investors await the publication of the Federal Open Market Committee (FOMC) minutes for January’s monetary policy meeting. The release will likely provide more cues about when the Fed will start reducing interest rates.

Daily Digest Market Movers: Geopolitics drive upside as investors await signs of Fed pivot

• Gold price trades inside Tuesday’s trading range around $2,025 as investors await the FOMC minutes of the first monetary policy meeting of 2024 to get more insights about the timing of rate cuts.
• The near-term outlook of Gold is bullish due to deepening Middle East tensions.
• Persistent attacks from Iran-backed Houthis on commercial vessels in the Red Sea have escalated geopolitical tensions. Safe-haven assets tend to attract higher foreign inflows in times of geopolitical uncertainty.
• Signs of the Fed’s willingness to keep interest rates higher for longer in the FOMC minutes could contribute further to the positive appeal for Gold. 
• The opportunity cost of holding non-yielding assets, such as Gold, increases when the Fed maintains interest rates higher.
• Meanwhile, the US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has rebounded strongly from a fresh weekly low of around 103.80.
• The solid USD Index’s recovery indicates uncertainty among market participants ahead of the FOMC minutes.
• Market expectations for Fed rate cuts will guide further action in safe-haven assets.
• As per the CME FedWatch tool, traders see a 54% chance for a 25 basis point (bp) rate cut in the June policy meeting.
• This week, market participants will also focus on the preliminary S&P Global PMI data for February, which will be released on Thursday.
• The Manufacturing PMI is forecasted to come out lower to 50.5 in February from 50.7 in January. The Services PMI, which represents sectors that account for two-thirds of the US economy, is expected to stand at 52.0, lower than the prior reading of 52.5.

Technical Analysis: Gold price aims to stabilize above $2,030

Gold price extends its winning streak for a fifth trading session but struggles to climb above its eight-day high of around $2,031 seen on Tuesday. On a daily time frame, the price is approaching the downward-sloping border of the Symmetrical Triangle chart pattern, which is plotted from December 28’s high at $2,088. The upward-sloping border of the aforementioned chart pattern is placed from December 13’s 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) has returned to the 40.00-60.00 range quickly after testing territory below 40.00, indicating a bullish reversal.