Gold price moves away from four-week peak; bears seem non-committed
- Gold price snaps a two-day winning to a multi-week top amid the Fed’s hawkish stance.
- Retreating US bond yields undermine the USD and lend some support to the XAU/USD pair.
- Traders look to Fed speakers for some impetus ahead of the US NFP report on Friday.
Gold price (XAU/USD) drifts lower during the Asian session on Thursday and moves away from a four-week top, around the $2,670 area touched the previous day. The US Dollar (USD) stands firm near a two-year peak touched last week in the wake of the Federal Reserve's (Fed) hawkish shift, which, in turn, is seen as a key factor undermining the non-yielding yellow metal. In fact, the Fed indicated that it would slow the pace of interest rate cuts in 2025 amid a still resilient US economy, signs that the US labor market remained robust and sticky inflation.
That said, concerns about US President-elect Donald Trump's protectionist policies and persistent geopolitical risks could offer some support to the safe-haven Gold price. The flight to safety leads to a modest pullback in the US Treasury bond yields, which holds back the USD bulls from placing fresh bets and might further contribute to limiting the downside for the XAU/USD. This warrants some caution before positioning for deeper losses as traders await the release of the closely-watched US monthly jobs data, or the Nonfarm Payrolls (NFP) report on Friday.
Gold price is pressured by the prospects for slower rate cuts by the Fed; downside seems limited
- Automatic Data Processing (ADP) reported that private sector payrolls in the US rose by 122,000 in December, well below November's increase of 146,000 and missing expectations of 140,000.
- A separate Labor Department report showed Initial Jobless Claims stood at 201,000 in the week ending January 4, marking the lowest reading since February 2024 and pointing to a stable labor market.
- Minutes of the December FOMC meeting showed that policymakers viewed labor market conditions as gradually easing and were in favor of slowing the pace of rate cuts amid stalling disinflation.
- The yield on the benchmark 10-year US government bond shot to its highest level since April 25 on Wednesday, assisting the US Dollar to stand firm near a two-year top and undermining the Gold price.
- CNN reported that US President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries.
- Ukrainian troops endured significant manpower losses in the face of Russia’s relentless assault. Russia's Defence Ministry said that its forces defeated Ukrainian brigades in Seversk and Chasov Yar.
- Israeli airstrikes continued across the West Bank on Wednesday in the wake of an attack that killed three Israelis on Monday. The Israeli military recovered the body of a hostage from southern Gaza.
- Investors now look to speeches by a slew of influential FOMC members for short-term impetus later during the US session, though the focus will remain glued to the US Nonfarm Payrolls on Friday.
Gold price bulls have the upper hand, acceptance above the $2,665 static resistance awaited
From a technical perspective, the overnight swing high, around the $2,670 area, now seems to act as an immediate hurdle, which if cleared will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart have started moving in positive territory, the Gold price might then climb to an intermediate resistance near the $2,681-2,683 zone en route to the $2,700 mark.
On the flip side, any further slide is likely to find support near the $2,645 area ahead of the $2,635 region and the weekly low, around the $2,615-2,614 zone touched on Monday. Some follow-through selling below the $2,600 confluence, comprising the 100-day Exponential Moving Average (EMA) and a short-term ascending trend line extending from the November monthly low, will be seen as a fresh trigger for bearish traders. The Gold price might then turn vulnerable to slide further below the December swing low, around the $2,583 area, and test the next relevant support near the $2,550 zone.
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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