Gold Is Approaching 2,000 as FOMC Minutes Are Expected to Be Dovish
On Monday, gold (XAU) price dropped to 1,965 but later recovered sharply on the back of falling U.S. Treasury yields.
XAU/USD has gained more than 2% over the past six trading sessions as easing U.S. inflation fuelled investors' expectations that the Federal Reserve (Fed) may begin cutting interest rates in early 2024. According to the CME FedWatch Tool, the market is currently pricing in a 30% chance of a rate cut in March and a 50% probability of a 25-basis-point cut by May. At the same time, investors may be getting overly optimistic about the end of the U.S. monetary policy tightening, while the Fed may remain hawkish longer than the market expects. Thomas Barkin, Richmond Fed President, recently stated that inflation is expected to persist, encouraging the Fed to maintain high-interest rates.
XAU/USD rose sharply during the Asian and early European trading sessions as the US Dollar Index (DXY) and U.S. Treasury yields continued declining. Today, traders should focus on the Federal Open Market Committee (FOMC) minutes from the November meeting at 7:00 p.m. UTC. The release of the protocols is usually associated with increased volatility, but some analysts expect the market to be quiet. 'I think the minutes will be a non-event. There was not going to be any mention of cuts, Jerome Powell made that very clear in his news conference. It's just the market that's expecting cuts from the Fed,' said Edward Meir, a metals analyst at Marex.
"Spot gold may revisit its 27 October high of $2,009.29 per ounce, as it has pierced above a resistance at 1,991," said Reuters analyst Wang Tao.
AUD Is at Its Four-Month High After the Release of Hawkish RBA Minutes
On Monday, the Australian dollar (AUD) surged by 0.74% and settled above the critical 0.65500 level as investors continued to close their bullish bets on the US Dollar, believing the Federal Reserve (Fed) has finished raising its base rate.
AUD/USD has risen by 3% over the past six trading sessions as the combination of positive factors pushed the currency toward a four-month high. Firstly, the market doesn't expect more rate hikes from the Fed as recent U.S. economic data showed the economy and inflation are slowing. Secondly, there are reports that China's central bank is considering launching a stimulus program to support the economy. Bloomberg reported that Chinese regulators were drafting a list of 50 real estate developers eligible for a range of funding. China is a key importer of Australian goods, and any upbeat economic news tends to positively impact the AUD exchange rate. Finally, the Reserve Bank of Australia (RBA) has recently published the minutes from its previous meeting, which clearly showed that the officials' sentiment remains rather hawkish. The protocols stated that 'the members agreed there was a risk of inflation expectations increasing if the Board left the cash rate unchanged at this meeting.'
AUD/USD continued to rise strongly in the Asian and early European trading sessions after hawkish RBA minutes. AUD/USD may experience extra volatility today due to the FOMC minutes at 7 p.m. UTC. Now, the market seems to believe that the U.S. inflation has been beaten, and the regulator may turn dovish. Therefore, AUD/USD may fall sharply if the minutes show that the Fed is still considering more rate hikes.