The price of gold (XAU/USD) reached a two-week high but struggled to maintain momentum, as traders weighed various factors impacting the precious metal. The Federal Reserve’s cautious stance on interest rates, a weaker US Dollar (USD), and bullish sentiment in equity markets all played a role in shaping gold’s performance.

One of the key drivers behind gold’s recent gains was the Federal Reserve’s indication that it does not plan to raise interest rates further. This led to a decline in US Treasury bond yields, making them less attractive to investors and putting downward pressure on the US Dollar. As a result, gold, which is often seen as a hedge against inflation and currency devaluation, found support.

Traders are closely watching for insights into the Fed’s future interest rate decisions, with the release of the Federal Open Market Committee (FOMC) meeting minutes. The minutes are expected to provide further clarity on the central bank’s stance and any potential changes to its monetary policy. Investors are particularly interested in any indications of a possible easing of the Fed’s monetary policy, which could further support gold prices.

In addition to the Fed’s dovish expectations, Chinese officials have pledged more policy support for the real estate sector, boosting market optimism. This positive sentiment has spilled over into the gold market, as investors seek safe-haven assets amid uncertain global economic conditions.

Technical analysis suggests that if gold manages to break beyond the $1,993 level, it could pave the way for a reclaim of the psychological $2,000 mark. This could act as a bullish trigger for traders, potentially driving further gains.

From a quantitative perspective, US Treasury bond yields have declined, with the 2-year government bond yield falling below the current Fed funds target range of 5.25-5.50%. According to CME’s Fedwatch tool, there is a 30% chance of rate cuts starting in March 2024 and an expectation of nearly 100 basis points of cumulative easing by the end of the year. The US 10-year Treasury yield has also dropped to a two-month low, reflecting the market’s expectations of a more accommodative monetary policy.

Richmond Fed President Thomas Barkin commented on the inflation outlook, stating that “inflation is likely to remain stubborn and force the central bank to keep rates higher for longer than investors currently anticipate.” This suggests that the Fed may need to take a more cautious approach to interest rate hikes in response to persistent inflationary pressures.

China’s new finance minister, Lan Fo’an, announced that the country would increase budget spending to support the post-pandemic recovery in the world’s second-largest economy. This commitment to fiscal stimulus further boosts market optimism and indirectly supports the demand for safe-haven assets like gold.

In summary, the price of gold has reached a two-week high, driven by the Federal Reserve’s dovish expectations, a weaker US Dollar, and market optimism fuelled by Chinese policy support. Traders are eagerly awaiting the FOMC meeting minutes for insights into the future direction of interest rates. Technical analysis suggests that a move beyond $1,993 could be a bullish trigger for gold, potentially pushing it towards the psychological $2,000 mark.