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Gold price oscillates ahead of US Q4 GDP data

2024-01-25
  • Gold price range-trades ahead of the first estimate for US Q4 GDP data.
  • The US Dollar Index consolidates as investors look for fresh guidance on interest rates.
  • US economic resilience continues to strengthen the appeal for restrictive interest rates – a negative for Gold.

Gold price (XAU/USD) remains inside the woods as investors await the United States Gross Domestic Product (GDP) release for Q4, which will provide fresh information on which to base an outlook for interest rates. Investors are watching as upbeat GDP data could weaken the consensus argument advocating early interest rate-cuts by the Federal Reserve (Fed).

Stronger US PMI data, released by S&P Global, is reflecting resilience in the US economy, allowing Fed policymakers to designate rate-cuts from March as “premature”. The US economy is resilient amid upbeat labor market conditions and robust consumer spending. In addition to that, widely anticipated interest rate-cuts by the Fed this year has set a positive undertone for the economic outlook. 

Apart from the Q4 GDP data, market participants will keenly focus on the core Personal Consumption Expenditure price index (PCE) data for December, which will be published on Friday. The underlying core inflation is preferred by Fed policymakers while deciding on the interest rate policy.

Daily Digest Market Movers: Gold price trades sideways ahead of US data

  • Gold price turns sideways to near $2,015 after a sharp fall, ahead of the United States Q4 GDP data, which will be published at 13:30 GMT.
  • Investors have projected that the US economy expanded at a slower pace of 2.0% against robust growth of 4.9% recorded in the third quarter of 2023.
  • Moderate economic expansion would ease the stubborn inflation outlook and will discourage Federal Reserve policymakers from advocating a restrictive interest rate stance. 
  • As per the CME Fedwatch tool, the chances in favour of an interest rate cut by 25 basis-points (bps) in March have dropped to 42.4%.
  • Bets supporting a decline in interest rates dampened due to strong recovery in the US PMIs in December. The Manufacturing PMI landed above the 50.0 threshold at 50.3, stronger than expectations and the former reading of 47.9. 
  • The Services PMI that represents the service sector, which accounts for two-thirds of the economy, rose to 52.9 from the prior reading of 51.4 and expectations of 51.0.
  • A sharp recovery in the US economic activity indicates that the economy has started 2024 on a firm-footing and has improved the outlook for the entire year. 
  • Business confidence was uplifted by hopes of easing inflation, cost-of-living crises and a reduction in borrowing rates.
  • Strong set of PMI numbers empowered the US Dollar to bounce back strongly. The appeal for the US Dollar could strengthen further if the US GDP data turns out stronger-than-anticipated.
  • The US Dollar Index (DXY) has corrected gradually to near 103.20 and is expected to remain subdued ahead.     
  • After the US Q4 GDP data, market participants will shift their focus to the core underlying inflation data for December, which will be released on Friday.
  • A stubborn core PCE price index data would strengthen the case for a restrictive monetary policy stance.
  • Next week, the Fed is widely anticipated to maintain the status-quo but a stubborn inflation report would allow them to endorse higher interest rates at least until first-half of 2024 ends.