During the early Asian session on Wednesday, the price of gold (XAU/USD) maintained its position above $2,060, signaling resilience in the face of prevailing market conditions. As the last week of 2023 unfolds, a subdued atmosphere prevails, characterized by light trading volumes. At the time of reporting, gold is trading at $2,066, experiencing a marginal 0.09% decline for the day.
The U.S. Dollar exhibited broad weakness against its counterparts, contributing to the favorable environment for gold. The U.S. Dollar Index (DXY), a gauge measuring the USD against a weighted basket of currencies used by U.S. trade partners, slid to its lowest level since July, hovering near 101.45. Concurrently, Treasury yields edged lower, with the 10-year yield settling at 3.89%.
Market expectations of Federal Reserve (Fed) easing have intensified, as reflected in the data from the World Interest Rate Probability (WIRP). The current market sentiment prices in a 15% probability of a cut on January 31, with complete pricing for a cut by March 20 and six cuts fully factored in by the end of 2024. However, traders remain attentive to forthcoming data releases for further guidance. Notably, lower interest rates tend to favor gold as they reduce the opportunity cost of holding non-yielding assets.
In economic developments from the previous week, November’s Core Personal Consumption Expenditures Price Index (Core PCE) delivered results below market expectations. The month-on-month figure came in at 0.1%, falling short of the consensus forecast of 0.2%. On an annual basis, the Core PCE exhibited its slowest rise since April 2021, registering at 3.2% year-on-year, down from 3.4% in October and below the market’s expectation of 3.3%.
Turning attention to geopolitical factors, Yemen’s ongoing threat to the Red Sea remains a point of concern, further compounded by worries about a broader risk to shipping. Notably, Iran has indicated the potential closure of the Gibraltar Strait, although skepticism persists among experts. Such geopolitical uncertainties have the potential to elevate the price of safe-haven assets like gold, as investors seek refuge amid geopolitical tensions.
As the year draws to a close, the gold market remains influenced by a combination of macroeconomic factors, geopolitical events, and evolving market sentiment. Investors are likely to tread cautiously in the final week of 2023, with the price of gold poised to respond to any significant developments on the global stage.
