Gold bounces back amid weak US Dollar, falling US yields
- XAU/USD gains over 0.13% on Wednesday, rebounding from a weekly low of $2,605 due to a weaker US Dollar and declining US Treasury yields.
- US economic data show strength with the second GDP estimate for Q3 and strong labor market data.
- The core Personal Consumption Expenditures (PCE) Price Index aligns with expectations yet continues to rise.
Gold prices recover on Wednesday after dropping to a weekly low of $2,605, bolstered by a soft US Dollar responding to the release of US economic data. This alongside falling US Treasury bond yields, spurred Gold’s recovery to current prices. The XAU/USD trades at $2,636 up by 0.13%.
The market mood turned slightly sour as US equity markets prepared for Thanksgiving. In the meantime, the Federal Reserve’s (Fed) preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, justifies the Fed's gradual approach, which is expected to lower borrowing costs at the December meeting.
Other data showed that the economy remains robust after the release of the second estimate of the third quarter's Gross Domestic Product (GDP). At the same time, jobs data revealed that the labor market remains strong as the number of Americans applying for unemployment benefits dipped below estimates.
Following the data, US Treasury bond yields fell, dragging the Greenback lower. The US Dollar Index (DXY), which tracks the performance of six currencies against the buck, tumbled 0.78% to 106.04.
Bullion prices recovered despite Lebanon and Israel agreeing on a ceasefire. Nevertheless, the escalation of the Russia-Ukraine conflict could keep buyers leaning into the non-yielding metal, which posted weekly losses of over 2.90% despite advancing on Wednesday.
According to CME FedWatch Tool data, markets now see a 70% chance of a quarter-point rate cut in December. The non-yielding metal shines in lower interest rate environments.
Daily digest market movers: Gold prices fluctuate near $2,630
- Gold prices recovered as US real yields dropped six basis points to 1.966%.
- US Durable Goods Orders rose by 0.2% MoM in October, missing the 0.5% forecast but improving from September's -0.4% decline.
- The second estimate of US GDP growth for Q3 came in at 2.8% QoQ, meeting expectations but below the 3% growth recorded in Q2 2024.
- Initial Jobless Claims for the week ending November 23 remained steady at 213K, below the projected 217K.
- Core PCE increased by 2.8% YoY in October, in line with expectations and slightly above September's 2.7%.
- Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.
Technical outlook: Gold price advances modestly, clings to $2,630
Gold's price is neutral to downwardly biased after sellers pushed Bullion below the $2,700 mark. Although the golden metal pushes higher on Wednesday, the XAU/USD is carving out a series of successively lower highs and lower lows. However, if bulls reclaim the 50-day SMA at $2,667, this could pave the way to challenge $2,700, the psychological $2,750, and the all-time high at $2,790.
Conversely, If bears push prices below $2,600, it will open the door to testing the 100-day SMA of $2,568, immediately followed by the November 14 swing low of $2,536.
Oscillators like the Relative Strength Index (RSI) have shifted bearishly, indicating sellers are in charge.
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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