Gold has Risen Over 14% in 2023
The gold (XAU) price rose by 0.51% on Wednesday as the US Dollar Index (DXY) and Treasury yields dropped sharply.
XAU/USD has been rising for five consecutive trading sessions, reaching a 3-week high as the market expects the Federal Reserve (Fed) to ease its monetary policy in Q1 2024. Currently, investors price in an 87% probability of a 25-basis-point (bps) rate cut in March. Overall, the market anticipates up to 156 bps of rate reductions by the end of 2024.
Gold rose over 14% this year—its first annual increase since 2020. Interest rate cut expectations, conflicts in Ukraine and Gaza, and wider geopolitical unrest in the Middle East contributed to the XAU/USD increase, fueling safe-haven demand for the metal. 'The rapid decline in inflation is likely to lead the Fed to cut early and fast to reset the policy rate from a level that most participants will likely soon see as far offside,' noted analysts at Goldman Sachs in a report. 'We expect three consecutive 25-bps cuts in March, May, and June, followed by one cut per quarter until the funds rate reaches 3.25–3.5% in Q3 2025. Our forecast implies five cuts in 2024 and three more cuts in 2025,' Goldman Sachs analysts added.
XAU/USD was rising during the Asian and early European trading sessions. Today, traders should focus on the US Initial Jobless Claims report at 1:30 p.m. UTC. Lower-than-expected figures may bring the gold price below 2,078. However, the long-term bullish trend in XAU/USD may continue if the numbers are higher than expected. 'Spot gold may test a resistance zone of 2,091–2,094 USD per ounce, a break above which could open the way towards the 2,108–2,119 USD range,' said Reuters Analyst Wang Tao.
USD/JPY Drops to a 5-Month Low as BOJ Indicates a Possible Change in the Monetary Policy
The Japanese yen (JPY) gained 0.39% on Wednesday after Bank of Japan's (BOJ) meeting summary revealed discussions on exiting the stimulus program. Still, several officials suggested there's no need to act now.
Kazuo Ueda, the BOJ Governor, mentioned that Japan's chances of exiting the low-inflation environment and reaching its price stability goal are slowly increasing, yet they're not high enough. He said that the board may consider readjusting its monetary policy if the positive correlation between wages and prices strengthens and the chance of achieving the 2% inflation target increases. 'The chance of pulling short-term interest rates out of negative territory next year is not zero,' Ueda said. The market considered his comments hawkish, and traders are currently pricing in 20-basis-point (bps) rate hikes by the end of 2024.
During the Asian trading session, USD/JPY rose but then declined sharply in the early hours of the European trading session. Today, traders should focus on Weekly Jobless Claims data at 1:30 p.m. UTC and the US Pending Home Sales report at 3:00 p.m. UTC., which will likely cause some volatility. Better-than-expected data will likely slightly reduce the chances of an interest rate cut from the Federal Reserve (Fed) early next year. Still, if the probability of a rate cut decreases, the impact on USD/JPY will be bullish. However, if reports indicate a deteriorating situation in the US labor market and declining home sales, the bearish trend in USD/JPY will continue, and the pair may reach 140.00.