The price of gold (XAU/USD) experienced a dip to a one-and-a-half-week low on Wednesday, influenced by surging US Treasury bond yields and a strengthening US Dollar. However, a shift occurred as US bond yields began losing traction after the release of the minutes from the December 12-13 Federal Open Market Committee (FOMC) meeting. The minutes revealed a consensus among policymakers that inflation is under control, mitigating downside risks associated with an overly restrictive stance on the economy. A generally weaker tone in equity markets also contributed to gold attracting buyers around the $2,030 level, gaining momentum during the Asian session on Thursday.
While the FOMC minutes did not provide insights into the timing of potential interest rate cuts, Richmond Fed President Thomas Barkin’s statements indicating that interest rate hikes remain an option acted as a tailwind for US bond yields. This development is expected to limit significant downside for the US Dollar, consequently capping the upward potential for gold prices. Traders are now seeking further clarity on the Federal Reserve’s policy outlook, with a keen focus on the release of the Nonfarm Payrolls (NFP) report on Friday.
In the interim, market attention is directed towards Thursday’s US economic calendar, featuring the ADP report on private-sector employment and the regular Initial Jobless Claims. These releases are anticipated to offer short-term trading opportunities during the early North American session. Nevertheless, doubts surrounding the likelihood of early interest rate cuts by the Fed may restrain traders from adopting aggressive bullish positions on the non-yielding gold, necessitating caution before confirming the potential end of a one-week-old downtrend.
