The gold price turned south in the European session and declined toward $1,920. The benchmark 10-year US Treasury bond yield rises toward 3.55% and clings to gains on Monday, weighing on XAU/US. The US economic docket will not feature any high-impact data releases.
The Fed will announce its policy decision at the end of a two-day meeting on Wednesday and is expected to raise interest rates by a smaller 25 bps. This would mark a further moderation in the pace of the rate-hike cycle, which keeps the US Dollar bulls on the defensive and continues to act as a tailwind for the non-yielding gold price. The prospects for a less aggressive policy tightening by the Fed were reaffirmed by Friday’s release of the Personal Consumption Expenditures (PCE) data from the US.
In fact, the Fed’s preferred inflation gauge, the Core PCE Price Index declined to the 4.4% YoY rate in December from 4.7% previous and added to signs of easing inflationary pressure. Other US macro data released recently, however, pointed to a resilient economy and backed the case for the Fed to maintain its hawkish stance for longer. Hence, investors will look for cues on the Fed’s stance on future rate hikes, which will influence the USD and provide a fresh directional impetus to the gold price.
This week’s traders will focus this week on the Bank of England (BoE) meeting and the European Central Bank (ECB) decision, both scheduled on Thursday. Any hawkish signals from major central banks will likely be negative for the gold price and set the stage for a deeper corrective pullback. Market participants also await the release of the fourth-quarter economic growth data and the flash inflation readings from the Eurozone, along with the closely-watched US monthly jobs data (NFP) on Friday.
In the meantime, the underlying bearish sentiment surrounding the USD might continue to lend some support to the gold price. That said, a generally upbeat tone around the equity markets might hold back traders from placing aggressive bull’s bets around the safe-haven XAU/USD and keep a lid on any meaningful upside, at least for the time being.
