Gold price trades with positive bias; remains below $2,700 on Fed rate cut expectations
Gold price regains positive traction following Thursday’s pullback from a multi-month peak.
Geopolitical risks, trade war fears and Fed rate cut bets continue to benefit the commodity.
Expectations for a less dovish Fed and elevated US bond yields might cap the precious metal.
Gold price (XAU/USD) attracts some dip-buyers during the Asian session on Friday and reverses a part of the previous day's profit-taking slide from a five-week high, around the $2,726 area. Geopolitical risks stemming from the Russia-Ukraine war and tensions in the Middle East, along with concerns over US President-elect Donald Trump's tariff plans, continue to boost safe-haven demand. Apart from this, the growing market conviction that the Federal Reserve (Fed) will deliver a third consecutive rate cut at the end of the December policy meeting next week turns out to be key factors that benefit the non-yielding yellow metal.
Meanwhile, signs that the progress in lowering inflation down to the Fed's 2% target has stalled suggest that the US central bank will adopt a more cautious stance towards cutting interest rates. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the US Dollar (USD), which, in turn, might cap gains for the Gold price. Traders might also refrain from placing aggressive bets and opt to wait for the outcome of the FOM meeting next Wednesday. Investors will look for cues about the Fed's rate-cut path to determine the next leg of a directional move for the Greenback and the precious metal.
Gold price draws some support from haven flows; the upside seems limited
Ukraine has fired US-supplied missiles, targeting strategic sites deep into Russian territory. Meanwhile, Russian forces edge closer to a key eastern Ukraine city Pokrovsk after monthlong intense fighting.
Israel said on Thursday that its military would stay in the Syrian territory it seized until a new force was established that met its security demands and filled the vacuum after the collapse of the Syrian regime.
This marks a significant escalation in geopolitical tensions and drives some haven flows towards the Gold price amid bets that the Federal Reserve will lower borrowing costs at the end of the December meeting.
In the absence of any major upside surprise from the latest US consumer inflation figures released on Wednesday, the markets now seem to have fully priced in a 25 basis points Fed rate cut move next week.
The US Bureau of Labor Statistics reported on Thursday that the headline Producer Price Index (PPI) rose 0.4% in November and the yearly rate accelerated from 2.6% in October to 3% during the reported month.
The annual core PPI rose 0.2% in November and stood at 3.4% compared to the same time period last year, beating estimates and indicating that the progress in lowering inflation to the 2% target has stalled.
This comes on top of expectations that US President Donald Trump's expansionary policies will boost inflation and suggests that the Fed will adopt a more cautious stance on cutting interest rates going forward.
Expectations for a less dovish Fed continue to push the US Treasury bond yields and assist the US Dollar to preserve its weekly gains to a fresh monthly peak, which might cap the lower-yielding yellow metal.
Investors keenly await the crucial FOMC policy decision next week for cues about the interest rate outlook in the US. This will drive the USD demand and provide some meaningful impetus to the XAU/USD.
Gold price needs to move beyond $2,726 for bulls to retain near-term control
From a technical perspective, any further strength back above the $2,700 mark is likely to confront resistance near the $2,725-26 region or the monthly high touched on Thursday. The subsequent move up could lift the Gold price to the $2,735 intermediate hurdle en route to the $2,748-2,750 supply zone. The next relevant barrier is pegged near the $2,775 region, above which bulls might aim to challenge the all-time peak, around the $2,800 neighborhood touched in October.
On the flip side, the $2,675-2,674 area now seems to have emerged as an immediate strong support. A convincing break below, however, might prompt some technical selling and pave the way for further losses towards the $2,658-2,656 confluence – comprising 50- and 200-period Simple Moving Averages (SMAs) on the 4-hour chart. The latter should act as a key pivotal point, which if broken decisively could make the Gold price vulnerable to weaken further towards the $2,632-2,630 area en route to the $2,600 round-figure mark.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
