Gold climbs on rate cut expectations, safe-haven flows ahead of US NFP
Gold price (XAU/USD) climbs to seven-week highs above $4,325 during the early European trading hours on Monday. The precious metal extends its upside amid the prospect of interest rate cuts by the US Federal Reserve (Fed) next year. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Additionally, uncertainty and the risk-off sentiment could boost the safe-haven flows, benefiting the yellow metal price.
Nonetheless, hawkish remarks from Fed officials last week could lift the US Dollar (USD) and weigh on the USD-denominated commodity price. Traders will take more cues from the speeches by Fed Governor Stephen Miran and New York Fed President John Williams later on Monday.
The US employment report for October and November will take center stage on Tuesday, including Nonfarm Payrolls (NFP), Average Hourly Earnings and Unemployment Rate. These reports could provide more clarity on the labor market’s health and likely influence expectations for the Fed’s January meeting.
Daily Digest Market Movers: Gold jumps as Fed delivered its final 2025 rate cut, safe-haven flows
- Bloomberg reported on Sunday that a mass shooting at Bondi Beach in the Australian city of Sydney had killed at least 16 people and wounded 40. Australian Prime Minister Anthony Albanese said in a press conference early Monday that the shooting was a “targeted attack” on the Jewish community. He had previously described the incident as an “act of evil antisemitism, terrorism that has struck the heart of our nation.”
- Chicago Fed President Austan Goolsbee said on Friday that he “felt the more prudent course would have been to wait for more information” before cutting rates again after a government shutdown delayed several key economic reports in October and November.
- Cleveland Fed President Beth Hammack stated that the central bank should keep rates high enough to continue putting downward pressure on inflation.
- The US Fed last week announced its third and final quarter-point rate reduction this year, cutting interest rates by 25 basis points (bps) to a target range of 3.50% to 3.75%.
- Fed Chair Jerome Powel said that the reduction puts the central bank in a comfortable position as far as rates go. “We are well positioned to wait and see how the economy evolves,” said Powell.
- Markets are currently pricing in nearly a 76% probability that the Fed will hold interest rates steady in January 2026, compared with a 70% chance just before the December rate cut announcement, according to the CME FedWatch tool.
Gold maintains its constructive outlook in the longer term
Gold price trades in positive territory on the day. According to the four-hour timeframe, the positive outlook of the precious metal remains in play as the price holds above the key 100-day Exponential Moving Average. The Bollinger Band widens, suggesting a strong bullish trend. Furthermore, the upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 68.75. This displays the bullish momentum for the yellow metal.
On the bright side, the first upside barrier to watch is in the $4,345-$4,355 zone, representing the upper boundary of the Bollinger Band and the high of December 12. Sustained upside momentum could take XAU/USD back up to an all-time high of $4,381. Further north, the next resistance level is located at the $4,400 psychological mark.
On the downside, the initial support level for the yellow metal is seen at the low of December 12 at $4,257. More bearish candlesticks reflect a continuation of downside pressure, possibly dragging the price down to the next bearish target at $4,200, the 100-day EMA. The next contention level emerges at $4,166, the lower limit of the Bollinger Band.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Responses