Gold price trades with modest losses, downside seems limited amid trade war fears
- Gold price attracts some sellers as rebounding US bond yields help revive the USD demand.
- Trade war jitters and geopolitical tensions could help limit losses for the safe-haven XAU/USD.
- Thin trading volumes on the back of a US holiday warrant some caution for aggressive traders.
Gold price (XAU/USD) extends the previous day's retracement slide from the $2,658 region and drifts lower during the Asian session on Thursday. Wednesday's US macro data dump pointed to a still resilient US economy and stalled progress on inflation. This suggests that the Federal Reserve (Fed) might be cautious about further rate cuts and triggers a modest bounce in the US Treasury bond yields, which helps revive the US Dollar (USD) demand and is seen undermining the non-yielding yellow metal.
The markets, however, are still pricing in a greater chance that the US central bank will lower borrowing costs by 25 basis points (bps) in December. Furthermore, the US President-elect's threatened tariffs fueled concerns about a renewed trade war between the world’s largest economies and could undermine global economic growth. This, along with persistent geopolitical risks stemming from the protracted Russia-Ukraine war, assists the safe-haven Gold price to hold above the $2,600 mark.
Gold price drifts lower amid a fresh leg up in the US bond yields and reviving USD demand
- The US Bureau of Economic Analysis (BEA) reported on Wednesday that the Personal Consumption Expenditures (PCE) Price Index rose to 2.3% on a yearly basis in October from 2.1% in the previous month.
- Additional details of the report revealed that the core PCE Price Index, which excludes volatile food and energy prices, rose 0.3% on a monthly basis and edged higher from 2.7% in September to 2.8% last month.
- Separately, data published by the US Commerce Department showed that the world's largest economy expanded at a healthy 2.8% annual pace in the third quarter on strong consumer spending, which rose by 3.5%.
- Meanwhile, the Labor Department said that the number of Americans filing new applications for unemployment-related benefits fell by 2,000, to a seasonally adjusted 213,000 during the week ended November 23.
- This helps offset a slight disappointment from the US Durable Goods Orders, which rose 0.2% in October against an increase of 0.5% expected. Excluding transportation, orders increased by 0.1%, missing estimates.
- This comes on top of worries that US President-elect Donald Trump's policies will boost inflation and FOMC minutes, showing that the Committee could pause its easing of the policy rate if inflation remained elevated.
- The benchmark 10-year US Treasury yields rebound from a level not seen in a month and assist the US Dollar in reversing a part of the overnight slide to a two-week low, exerting some pressure on the Gold price.
- Trump earlier this week pledged to impose tariffs on a wide range of products coming into the US from Mexico, Canada, and China. Apart from this, geopolitical tensions underpin the safe-haven precious metal and help limit losses.
Gold price bears need to wait for a sustained break below $2,600 before placing fresh bets
The overnight failure to find acceptance above the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the subsequent downfall warrant caution for bullish traders. Furthermore, negative oscillators on hourly and daily charts suggest that the path of least resistance for the Gold price is to the downside. That said, it will still be prudent to wait for a sustained break and acceptance below the $2,600 mark before positioning for deeper losses. The XAU/USD might then aim to challenge the 100-day SMA, currently pegged near the $2,571-2,570 area, before eventually dropping to the monthly swing low, around the $2,537-2,536 region.
On the flip side, any move up beyond the Asian session peak, around the $2,638-2,639 zone, now seems to confront a strong barrier near the overnight swing high, around the $2,658 region. A sustained strength beyond the latter could lift the Gold price to the next relevant hurdle near the $2,677-2,678 hurdle en route to the $2,700 round figure. Some follow-through buying will suggest that the recent corrective decline from the all-time peak touched in October has run its course and shifts the bias in favor of bullish traders.
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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