The gold price (XAU/USD) has drawn some buyer interest on Tuesday, yet its bullish momentum remains subdued, staying below the $2,040-$2,042 supply zone in the early European session. Geopolitical tensions in the Middle East and a weaker US Dollar have provided support, notably following a rise in the Japanese Yen post-Bank of Japan (BoJ) activities.
Despite these factors, a substantial upward movement for the gold price remains elusive, primarily due to reduced expectations for aggressive Federal Reserve (Fed) policy easing. Strong US macro data and recent hawkish comments from several Fed officials, emphasizing the premature nature of considering interest rate cuts, have influenced this shift in expectations.
The sustained elevation of US Treasury bond yields, supported by a still-resilient economy, acts as a constraint on USD losses, thereby keeping a check on the non-yielding gold price. Traders are exercising caution ahead of key events this week, including the release of global PMIs, US Q4 GDP figures, and the US Core PCE Price Index.
The upcoming European Central Bank (ECB) policy decision on Thursday adds an element of potential market volatility, impacting short-term trading opportunities for the gold price. Meanwhile, the release of the Richmond Manufacturing Index, along with developments in US bond yields, USD dynamics, and overall risk sentiment, may provide further market impetus on Tuesday.
Market Digest: Gold Price Responds to Geopolitical Concerns and USD Softening
The gold price benefits from geopolitical tensions and a weaker US Dollar.
Joint US-UK air strikes against Iran-backed Houthis in Yemen contribute to the safe-haven appeal of gold.
Diplomatic resolutions between Pakistan and Iran contrast with the escalating Israel-Hamas conflict, impacting global economic concerns.
Investors recalibrate expectations for aggressive Fed policy easing, with reduced chances of a March rate cut.
Market pricing indicates a 40% chance of a March rate cut, down from 80% a week ago, affecting gold’s outlook.
Technical analysis suggests resistance at the $2,040-$2,042 zone, with potential for short-covering rally if decisively cleared.
Downside protection identified at $2,017-$2,016, with vulnerability below the $2,000 psychological mark.
Further downward trajectory could lead towards intermediate support at $1,988, followed by 100-day and 200-day Simple Moving Averages.