Gold Continues to Trade Above 2,020 as Traders Buy the Dips
The gold (XAU) price rose 0.44% on Monday as traders bought the dips, expecting the Federal Reserve (Fed) to act on its promise to cut the rates in early 2024.
In the absence of any big news events, the market was very quiet on Monday. Still, the general tendency on the part of traders has been to buy the dips. Indeed, investors continue to price in a large probability that the Fed will begin to ease its monetary policy in Q1 2024, pushing XAU/USD higher. As gold is a non-yielding asset, its attractiveness increases when interest rates are expected to be cut. 'The underlying factors keeping a floor under the gold market are the weaker US dollar, easier monetary policy and some safe-haven demand from heightened tensions in the Middle East,' said Jim Wyckoff, the senior analyst at Kitco Metals.
At the same time, XAU/USD bulls should be careful. Some Fed officials have recently poured cold water on traders' expectations of a soon rate cut. Austan Goolsbee, Chicago Fed President, said that the central bank is not recommitting to cutting interest rates soon and swiftly and that the jump in market expectations that it will do so contradicts how the Fed functions.
XAU/USD was falling slightly during the Asian and early European trading sessions. Traders should continue to focus on the U.S. macroeconomic data for any signals on the Fed's interest rate trajectory. Today's Building Permits report at 1:30 p.m. UTC and the upcoming speech by Thomas Barkin, the President of the Richmond Fed, at 2:30 p.m. UTC may spur some volatility in XAU/USD. 'Spot gold may retest support of $2,019 per ounce, a break below which could open the way towards a range of $2,001 to $2,010,' said Reuters analyst Wang Tao.
USD/JPY Jumps as BOJ Leaves the Rates Unchanged
The Japanese yen (JPY) lost 0.41% on Monday as the US dollar Index (DXY) increased slightly.
The main theme in the market remains last week's signal from the Federal Reserve (Fed) on the possibility of interest rate cuts next year. Therefore, DXY's recovery may be short-lived. Earlier today, the Bank of Japan (BOJ) maintained its short-term interest rate at −0.1% and said it will remain in the wait-and-see mode for now. The BOJ Governor, Kazuo Ueda, said it's still unclear if the central bank will change its policy next month. Traders, however, hoped to see at least some indication of the possible rate-hike trajectory. As a result, the yen weakened, and USD/JPY jumped above the important 144.00 level.
USD/JPY traders have been receiving some contradictory signals lately. On the one hand, the Fed seems ready to deliver a first-rate cut, weakening the US dollar. On the other hand, the BOJ is still unsure when to deliver the first rate hike, weakening the Japanese yen. Fundamentally, traders are currently expecting 150-basis-point (bps) worth of rate cuts in the U.S. by the end of December 2024 and around 20-bps rate hikes in Japan. Thus, the fundamental pressure on USD/JPY remains bearish. The technical mid-term bias remains bearish as the USD/JPY trades below 148.200.