- Gold price attracts some sellers as the risk-on mood undermines demand for safe-haven assets.
- The prospects for a slower Fed rate cut contribute to driving flows away from the XAU/USD pair.
- A softer USD and geopolitical risks could support the precious metal ahead of the US CPI report.
Gold price (XAU/USD) meets fresh supply during the Asian session on Wednesday and erodes a part of the previous day’s modest recovery gains from a one-week trough. Easing fears about US President-elect Donald Trump’s disruptive trade tariffs, along with Tuesday’s softer-than-expected inflation data from the US, remains supportive of the risk-on mood. This, in turn, is seen as a key factor undermining demand for the safe-haven precious metal.
Moreover, the upbeat US monthly jobs report released on Friday reaffirmed the Federal Reserve’s (Fed) hawkish outlook and keeps the US Treasury bond yields elevated, which contributes to driving flows away from the non-yielding Gold price. The US Dollar (USD), meanwhile, languishes near the weekly low touched on Tuesday. This, along with geopolitical risks, lends support to the XAU/USD ahead of the crucial US Consumer Price Index (CPI) report.
Gold price bulls remain on the sidelines amid the risk-on environment, ahead of US CPI report
- A Bloomberg report, citing people familiar with the matter, said on Monday that US President-elect Donald Trump’s economic advisers are considering a program to gradually increase tariffs month by month.
- Moreover, softer-than-expected inflation data from the US helped pause the recent surge in the US Treasury bond yields and boosted investors’ appetite for riskier assets, undermining the safe-haven Gold price.
- The US Bureau of Labor Statistics reported on Tuesday that the Producer Price Index, which measures wholesale inflation, rose 0.2% in December and the core gauge remained flat during the reported month.
- This comes on the back of the upbeat US monthly jobs report on Friday and makes it difficult for investors to project the Federal Reserve’s next moves on interest rates, which keeps the US Dollar bulls on the defensive.
- Ukraine launched its largest air attacks on Russia since the start of the war nearly three years ago. The Russian military said that the attacks would not go unanswered and launched more projectiles towards Ukraine.
- Israel launched fierce strikes on Gaza and intensified bombing on Tuesday, killing at least 13 people. Meanwhile, negotiators are nearing a breakthrough on the Gaza ceasefire after intense discussions in Qatar.
- Traders now look forward to the US Consumer Price Index (CPI) report for more insight into the Fed’s policy outlook, which will drive the USD demand and provide some meaningful impetus to the XAU/USD.
Gold price dip-buying near the $2,663-2,662 area should help any meaningful corrective slide
Technical indicators on the daily chart have been gaining positive traction and support prospects for the emergence of some dip-buyers near the $2,663-2,662 area. Some follow-through selling, however, could drag the Gold price to the next relevant support near the $2,336-$2,635 region. The downward trajectory could extend further towards the $2,615-2,614 confluence, comprising the 100-day Exponential Moving Average (SMA) and a multi-week-old ascending trend line. A convincing break below the latter would shift the near-term bias in favor of bearish traders and pave the way for deeper losses.
On the flip side, the $2,690 zone is likely to act as an immediate hurdle ahead of the $2,700 mark. Some follow-through buying will set the stage for an extension of over a three-week-old up-trend and lift the Gold price to the $2,716-2,717 hurdle en route to the December monthly swing high, around the $2,726 region.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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