Gold price slides back below $2,700 mark amid modest USD strength
- Gold price met with a fresh supply and eroded a part of the overnight recovery gains.
- The Trump trade optimism revives the USD demand and weighs on the precious metal.
- Retreating US bond yields and bets for additional Fed rate cuts could help limit losses.
Gold price (XAU/USD) struggles to capitalize on the previous day's solid rebound from the 50-day Simple Moving Average (SMA) support near the $2,643 area, or over a three-week low and attracts some sellers during the Asian session on Friday. The US Dollar (USD) regains positive traction and reverses a part of the previous day's retracement slide from a four-month peak. This, along with a generally positive risk tone, turns out to be a key factor undermining the safe-haven precious metal.
Meanwhile, the unwinding of the so-called Trump trade and the lack of hawkish signals from the Federal Reserve (Fed) keep the US Treasury bond yields depressed below a multi-month high touched on Wednesday. This, in turn, might hold back the USD bulls from placing aggressive bets and act as a tailwind for the non-yielding Gold price. Traders now look forward to the release of the Preliminary Michigan Consumer Sentiment Index and Inflation Expectations for short-term opportunities.
Gold price drifts lower amid renewed USD buying and a positive risk tone
- Traders closed out some profitable Trump trades, which triggered a US Dollar corrective decline from a four-month high and provided a goodish lift to the Gold price on Thursday.
- The USD decline remained uninterrupted after the Federal Reserve decided to lower its benchmark overnight borrowing rate by a 25 basis point, to a target range of 4.50%-4.75%.
- In the accompanying policy statement, Fed officials justified the easing mode as they view supporting employment becoming at least as much of a priority as arresting inflation.
- Furthermore, Fed Chair Jerome Powell, during the post-meeting press conference, failed to offer cues that the central bank may pause rate cuts in the near term amid sticky inflation.
- According to the CME Group's FedWatch Tool, traders are pricing in 75% odds the Fed will cut rates again in December, leading to a further decline in the US Treasury bond yields.
- Donald Trump's presidential election victory fueled speculations about economic policy shifts that could increase deficits and inflation, and restrict the Fed's ability to cut rates.
- Meanwhile, hopes for an announcement of additional stimulus from China after a five-day meeting of the Standing Committee of the NPC remains supportive of the upbeat mood.
Technical Outlook: Gold price needs to move beyond the 61.8% Fibo. level for bulls to regain control
From a technical perspective, the recovery momentum falters ahead of a resistance marked by the 50% Fibonacci retracement level of the recent slide from the all-time peak. The said barrier is pegged near the $2,718 region, above which the Gold price could climb to the $2,734 area (61.8% Fibo. level). Some follow-through buying will suggest that the corrective pullback has run its course and lift the XAU/USD beyond the $2,750 static resistance en route to the $2,758-2,790 zone, or the record high touched on October 31.
On the flip side, the $2,672 region now seems to protect the immediate downside ahead of the $2,660 zone and the overnight swing low, around the $2,643 area, or the 50-day SMA support. A convincing break below the latter will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart have been losing positive traction, the Gold price might then accelerate the fall toward the October monthly swing low, around the $2,605-2,602 region.
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.
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