Gold price stands tall near multi-week top; looks to US NFP for fresh impetus
- Gold price attracts buyers for the fourth straight day on Friday amid some haven flows.
- The Fed’s hawkish stance, elevated US bond yields and a bullish USD should cap gains.
- Traders might also opt to wait for the release of the key US NFP report later this Friday.
Gold price (XAU/USD) trades with a positive bias for the fourth straight day on Friday and is currently placed just below a near four-week high touched the previous day. The uncertainty around US President-elect Donald Trump's proposed tariffs, along with geopolitical risks, continues to weigh on investors' sentiment and underpin the safe-haven bullion. Moreover, expectations that Trump's expansionary policies will boost inflation turns out to be another factor that benefits the precious metal's status as a hedge against rising prices.
That said, the prospects for slower interest rate cuts by the Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and assist the US Dollar (USD) to hold steady near a two-year high. This, in turn, could act as a headwind for the non-yielding Gold price and cap any further gains. Traders also seem reluctant and opt to wait for the release of the US Nonfarm Payrolls (NFP) report later during the US session. Nevertheless, the XAU/USD pair remains on track to register gains for the second consecutive week.
Gold price continues to benefit from worries about Trump’s tariff plans, geopolitical risks
- CNN reported on Wednesday that US President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for universal tariffs on allies and adversaries.
- Ukrainian forces launched a new surprise offensive in Kursk, inside Russia on August 6 and were reported to have advanced in three waves using company-sized assaults backed by armoured vehicles.
- The Israel Defense Forces stated that the commander of Hamas' Sabra battalion in Gaza City, his deputy and two elite Nukhba company commanders were killed in a series of airstrikes last week.
- The Federal Reserve adopted a more hawkish stance in December and projected only two quarter-point interest rate cuts in 2025 amid still elevated inflation in the world's largest economy.
- Boston Fed President Susan Collins said on Thursday that the economy is on a gradual, uneven trajectory to the 2% inflation target and the current outlook calls for a patient approach to rate cuts.
- Philadelphia Fed President Patrick Harker noted that the central bank is expected to cut rates further but explained that the path will depend on data and that it is taking longer to get inflation back to 2%.
- Kansas Fed President Jeffrey Schmid noted that inflation is moving toward target, growth is showing momentum, and the jobs market is still healthy. Any further rate cuts should be gradual and data-driven.
- Fed Board of Governors member Michelle Bowman said that the current stance of policy may not be as restrictive as others may see it and pent-up demand following the election could pose inflationary risks.
- Trump's policies are expected to stoke further inflation and further force the Fed to slow the pace of rate cuts this year, which keeps the US Treasury bond yields close to a multi-month high touched last week.
- Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 160K jobs in December and the Unemployment Rate held steady at 4.2%.
Gold price might now aim to reclaim the $2,700 round figure amid a bullish technical setup
From a technical perspective, this week's breakout through the $2,665 horizontal resistance was seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart have just started gaining positive traction, the Gold price seems poised to climb further to the $2,681-2,683 intermediate hurdle and then aim to reclaim the $2,700 round-figure mark.
On the flip side, dips towards the overnight swing low, around the $2,655 area, could be seen as a buying opportunity. This is followed by support near the $2,635 region and the weekly low, around the $2,615-2,614 zone touched on Monday, and the $2,600 confluence. The latter comprises the 100-day Exponential Moving Average (EMA) and a short-term ascending trend line extending from the November monthly low, which if broken decisively will shift the bias in favor of bearish 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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