Gold saw an uptick today as investors responded to President Trump’s intentions to implement new reciprocal tariffs, which boosted its appeal as a safe-haven asset. Even though the US Nonfarm Payrolls failed to meet expectations, a drop in the unemployment rate highlights a promising labor market. Additionally, the People’s Bank of China (PBoC) and some cautionary statements from Federal Reserve officials are also playing a role in shaping the metal’s market behavior.
On Friday, the price of gold resumed its upward trend, driven by the ongoing trade tensions between the US and China, alongside a mixed bag of US employment data. Presently, XAU/USD is trading at $2,862, a 0.24% jump.
Comments from US President Donald Trump about imposing reciprocal tariffs next week have provided a boost to bullion traders since the value of gold climbed following these statements. With the weekend approaching, this tension might lead to increased investment in gold’s safe-haven potential.
In January, US data showed that Nonfarm Payrolls fell short, but the unemployment rate improved in comparison to predictions and December’s figures. This indicates a robust labor market, potentially limiting the Federal Reserve’s ability to lower policy rates.
In reaction to these data points, gold prices shot up to touch $2,886, peak levels for the session. However, after the initial surge, prices settled back near their earlier levels.
Earlier reports indicated that the People’s Bank of China (PBoC) has resumed its purchases of gold, with reserves increasing from 73.29 to 73.65 million ounces.
At the same time, various Fed officials have been making the rounds with a cautious tone. Minneapolis Fed President Kashkari mentioned that the policy rate might stay "modestly lower." Chicago Fed President Goolsbee remarked that while the recent NFP data appears solid, future rate reductions could be more gradual and uncertain. On another note, Fed Governor Adriana Kugler commented on inflation stating that it had "stabilized," suggesting prudence in maintaining the current policy rate.
Gold and the US Dollar:
In today’s market movements, the US Dollar Index (DXY) inched up by 0.32% to sit at 108.04, having previously dipped to a day’s low of 107.51. The yield on the US 10-year Treasury bond went up by five basis points to 4.487%. Meanwhile, US real yields, often inversely related to bullion prices, rose three basis points to 2.062%, presenting a challenge for XAU/USD. As for the Nonfarm Payrolls in January, the numbers dipped from 256K to 143K, not meeting the expectation of 170K, though the unemployment rate decreased from 4.1% to 4%. Looking ahead, futures in money market Fed funds rate suggest 39 basis points worth of easing by 2025.
Technical Outlook for XAU/USD:
Gold trends upward, yet bulls have thus far resisted crossing the $2,900 threshold. With the Relative Strength Index (RSI) hovering in the overbought zone, the price movement of XAU/USD hints at a potential slowdown. Should gold fall below $2,800, it may find its next support around the psychological threshold of $2,750, further supported by the January 27 swing low of $2,730. Conversely, should the precious metal surpass the $2,900 mark, the next resistance could come at the psychological levels of $2,950 and subsequently $3,000.
Frequently Asked Questions about the Federal Reserve:
In the United States, monetary policy is managed by the Federal Reserve (Fed), which has a dual focus: ensuring price stability and promoting full employment. It primarily uses interest rate adjustments to achieve these objectives. To combat rapidly increasing prices and inflation above its 2% goal, the Fed will usually raise interest rates, thereby boosting borrowing costs across the economy and enhancing the US Dollar’s appeal to international investors. Conversely, when inflation drops below 2% or unemployment is too high, the Fed might lower rates to stimulate spending, which can weigh down the Greenback.
The Federal Reserve conducts eight policy meetings annually through the Federal Open Market Committee (FOMC), where economic conditions are reviewed to decide on monetary policy. This committee includes twelve Fed officials—the seven Board of Governors members, the president of the New York Federal Reserve Bank, and four rotating regional Reserve Bank presidents on one-year terms.
In extreme financial circumstances, the Fed may use Quantitative Easing (QE), significantly boosting credit flow in a stalled financial system. QE, a non-standard measure for crises or particularly low inflation scenarios, was key during the 2008 financial crisis. It involves printing more dollars to purchase high-grade bonds from financial entities, usually weakening the US Dollar. In contrast, Quantitative Tightening (QT) is the opposite process, typically beneficial to the dollar’s value, involving the Fed halting bond purchases and not reinvesting maturing bond principals.
