The Gold Price Remains High While the Market Enters the Holiday Season
The gold (XAU) price rose by 0.37% on Friday, reaching a 2-week high due to falling US Treasury yields.
XAU/USD is pushed higher by falling Treasury yields and a weaker US dollar as the market believes that the Federal Reserve (Fed) will cut interest rates early next year. Indeed, the probability of a rate cut in March 2024 currently stands at 93%, the highest point since the Fed's last meeting on 13 December. In addition, the market for interest rate swaps indicates that traders price in 130-basis-point (bps) worth of rate cuts by the end of December 2024. However, some analysts consider these expectations overly optimistic. 'Precious metals, including gold, are being driven higher by very aggressive rate cut expectations. It's priced for perfection, but the market usually discounts too zealously,' said Tai Wong, the New York-based independent metals trader. In other words, the market is expecting relatively weak macroeconomic reports, slowing inflation, and a looser labor market, which is unwarranted. The gold price is already rather high, and the US data will have to be substantially worse than expected to push XAU/USD higher.
XAU/USD is not trading today as Western markets, including NYMEX, are closed due to Christmas. Trading activity will continue on Tuesday, but volatility will likely be low due to the lack of liquidity as many market participants are on holiday while European exchanges remain closed. On Wednesday, trading activity may recover but will likely remain below the historical average. Traders should approach the market carefully and target only the most short-term opportunities. 'The current technical breakout could really push prices up to that 2,100 USD level. It could retest those recent contract highs,' said Phillip Streible, the chief market strategist at Blue Line Futures in Chicago.
On the physical market, Reuters reported that gold demand in India fell sharply due to high domestic prices. Dealers were offering a discount of up to 16 USD an ounce over official domestic prices—including the 15% import and 3% sales levies. 'This is traditionally a lean demand season. Except for a few southern states, demand remains weak across the country. This year, price volatility is further dampening the demand,' said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.
USD/JPY Stabilises Above 142.00, but BOJ's Governor Sounds More Hawkish
The Japanese yen (JPY) lost 0.22% on Friday as US macroeconomic reports showed mixed data.
US Personal Consumption Expenditure (PCE) Price Index numbers were weaker than expected, putting a bearish pressure on the US dollar. However, Durable Goods Orders figures rose towards a one-year high in November, surpassing the most optimistic projections. Overall, the Dollar Index (DXY) declined, reaching its lowest in almost five months, as the market considered inflation data more important. Meanwhile, the annual core PCE Price Index, excluding food and energy prices, rose by only 3.2% in November, marking the smallest increase since April 2021. Lower-than-expected PCE numbers solidified market expectations of a US interest rate cut in March.
Earlier, the Japanese yen faced downward pressure following the Bank of Japan's (BOJ) decision to continue its ultra-loose monetary policy without any clear hints at potential policy normalization in the upcoming year.
USD/JPY was falling in the Asian session but regained some losses during the early European session. Kazuo Ueda, the BOJ Governor, said that the possibility of achieving the central bank's 2% inflation target was 'gradually rising', and the regulator will consider changing monetary policy if prospects of sustainably achieving the target increase sufficiently. Although Ueda's remarks were relatively hawkish, the market didn't take it seriously as yields on Japanese bonds continued to decline. Today, traders should focus on the Japanese Unemployment Rate report at 11:30 p.m. UTC, as it may trigger some volatility. However, trading activity will be minimal due to the Christmas holidays. US financial markets are closed today, 25 December. Trading activity will resume on Tuesday, 26 December.