Gold price clings to recovery as US Dollar, yields ease, Fed speeches in focus

NEW YORK (February 7) Gold price (XAU/USD) is stuck in a tight range, slightly above $2,030 in the London session on Wednesday. Gold, a non-yielding asset, is both supported and capped by the fact that whilst the Federal Reserve is poised to make rate cuts, uncertainty remains over their timing. Fed policymakers are holding back from unwinding the restrictive monetary policy stance too aggressively due to the current strength in labor demand and upbeat household spending.

The US Dollar Index (DXY) and bond yields, which are negatively correlated to Gold price, have eased despite the fact the Fed is unlikely to cut interest rates in March – something that would usually weigh on the Gold. Even expectations for a rate cut in May have decreased significantly as the Fed lacks evidence that inflation will slow sustainably to its 2% target. Fed policymakers are worried premature action on interest rates could flare up price pressures again, cautioning that the last mile in taming price pressures is always a difficult one.

Going forward, speeches from Fed policymakers’ Richmond Federal Reserve Bank Thomas Barkin and Federal Reserve Governor Michelle Bowman will be of utmost importance.

Daily Digest Market Movers: Gold price remains steady while US Dollar eases, yields correct

• Gold price consolidates in a narrow range around $2,030 as investors await fresh guidance from Federal Reserve policymakers over inflation and interest rates.
• The economic indicators for January released so far have indicated that the United States is outperforming expectations, which signifies a persistent inflation outlook.
• The US economic calendar is light this week, therefore investors are focusing on speeches from Fed policymakers for fresh cues about when the central bank will begin reducing interest rates.
• The speech from Cleveland Federal Reserve Bank President Loretta Mester delivered on Tuesday indicated that deepening uncertainty over inflation is not allowing policymakers to offer any timing for rate cuts.
• Loretta Mester said a robust labor market and resilient household spending have allowed the Fed to keep interest rates restrictive, giving them time to gather evidence about inflation declining sustainably to the 2% target.
• Mester added that the Fed is looking to bring down interest rates, and the forecast of three rate cuts this year is intact.
• Philadelphia Federal Reserve Bank President Patrick Harker didn’t provide any cues about easy policy in his prepared remarks. However, he said the Fed is making “real progress” in bringing inflation down to 2%, and the path to a “soft landing” is very much in sight. A soft landing is when a central bank manages to achieve price stability without triggering a recession.

FXStreet