January 31, 2023

Gold Holds the High Ground as US Dollar Languishes. Where to for XAU/USD?

Gold, XAU/USD, US Dollar, FOMC, AUD/USD, RBA, NZD/USD RBNZ, Crude Oil – Talking Points

  • The gold price remains steady near its highs today as yields slip elsewhere
  • Australia and New Zealand saw uncomfortable CPI data that sent AUD/NZD north
  • The market is eyeing next week’s FOMC meeting. What will it mean for XAU/USD?

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Gold traded above US$ 1,942 overnight and continues to trade just below that level today as markets fret over the health of the US economy.

Disappointing PMI data appeared to lead to market perceptions that the Fed night is not going to be hiking as hard as previously thought. Treasury yields fell across the curve with the largest declines seen at the back end.

The lower return on offer from interest-rate products seems to have favoured the non-yield-bearing precious metal.

The Federal Open Market Committee (FOMC) meeting is Wednesday next week and a 25 basis point lift is baked in by the rates market. The proceeding commentary will be scrutinised for hints on futures rate moves and may impact the US Dollar and gold

Microsoft reported better-than-expected earnings but gave a warning on revenue from the Azure cloud business going forward and this appears to have soured market sentiment with Wall Street futures pointing to a soft start there later.

APAC equity markets that were open today have had a fairly quiet session with mainland China and Hong Kong still on holiday. South Korean indices were the exception with the Kospi and Kosdaq posting a gain of over 1% on their first day back trading after the Lunar New Year holidays.

Australia saw a sizzling CPI number today with the headline number printing at 7.8% year-on-year to the end of December, above the 7.6% anticipated and 7.3% previously.

Looking at the futures market, the odds of a 25 basis point hike at the RBA’s February meeting increased from around 50/50 to a 76% chance. AUD/USD climbed to a 5-month peak in the aftermath.

The Kiwi Dollar also got an initial boost from their CPI data that was 7.2% year-on-year for the fourth quarter rather than the 7.1% estimated. The currency then spent the rest of the day drifting lower.

Crude oil has been steady so far today after tumbling overnight on higher-than-forecast API inventory build. The WTI futures contract is near US$ 80.50 bbl while the Brent contract is around US$ 86.50 bbl at the time of going to print.

After German IFO numbers today, the Bank of Canada will be making an interest rate decision and the US will see mortgage data.

The full economic calendar can be viewed here.

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How to Trade Gold

GOLD TECHNICAL ANALYSIS

Gold is currently above all short, medium and long-term daily simple moving averages (SMA).

The gradients on the 10-, 21-, 55- and 100-day SMAs are positive but the 200-day SMA is yet to tick up. This may suggest that bullish short and medium-term momentum is evolving but long-term momentum is yet to completely acknowledge this.

Resistance might be at the recent peak of 1942 or the April 2022 high of 1998.

On the downside, support may lie at the low of 1897 or the breakpoints of 1865 and 1825.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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