- Gold falls but maintains weekly gains as mixed US economic data keeps rate cut expectations alive.
- The market is preparing for the Federal Reserve’s decision on December 18, with a 93% probability of an anticipated 25 bp cut.
- Upcoming US economic data and comments from Fed Chair Powell will be critical to the future direction of the market.
The price of gold fell for the second day in a row as high US Treasury yields weighed on the yellow metal. Traders expect the Federal Reserve (Fed) to cut interest rates next week. XAU/USD is trading at $2,657, down 0.80%.
Despite posting losses, the Bullion rises almost 1% on the week following a series of US economic data releases. US inflation data on the consumer and producer side was mixed, but The latest Initial Jobless Claims report gave investors the green light to consider a Fed rate cut in December.
Traders’ focus shifted to the Fed’s Dec. 17-18 policy meeting, with traders predicting a 93% probability of a 25 basis point (bp) rate cut based on data from the Board of Directors. Chicago Commerce (CBOT).
Following the decision, investors will be watching Fed Chair Jerome Powell’s press conference for clues about the policy path to 2025.
Second-tier data released on Friday showed that US Import Prices rose marginally, while Export Prices fell in November.
The underperforming metal extended its losses after US Secretary of State Antony Blinken said he has seen encouraging signs that a ceasefire in Gaza is possible.
Next week, the US economic agenda will include the release of S&P Global Flash PMIs, Retail Sales, Industrial Production, the Federal Open Market Committee (FOMC) policy decision and the release of the Prices of underlying Personal Consumption Expenditure (PCE).
Daily Markets Summary: Gold Price Steady Amid Rising US Treasury Yields
- Gold prices plunged while US real yields rose almost five basis points to 2.066%, from 1.996%.
- The yield on the 10-year US Treasury bond rises four and a half basis points to 4.375%, weighing on the gold metal.
- The US Dollar Index remains firm at 107.05, virtually unchanged.
- November Import Prices rose 0.1% month-on-month, unchanged compared to October but exceeding forecasts for a -0.2% slowdown.
- Export Prices for the same period fell from 1% to 0% month-on-month, above estimates of -0.2%.
- Sources cited by Reuters noted, “We have reached the time of year when convictions are low and positions are held on a short leash, meaning that any price reversal – in both directions – will be quickly met with a tightening of positions.”
- Goldman Sachs analysts noted that China’s central bank “could even increase demand for gold during periods of local currency weakness to increase confidence in its currency.”
Technical Outlook: Gold Price Pulls Back, Sellers Target 100-Day SMA
Gold price continued its correction after reaching a two-month peak of $2,726 before sliding towards the $2,650 region. It seems that the gold metal found its price just within the $2,600-$2,700 range near the 50-day and 100-day Simple Moving Averages (SMA) at $2,670 and $2,597, respectively.
A weekly close below the 50-day SMA could motivate sellers to drive the gold price lower. Key support levels are at $2,600, the 100-day SMA and near the Nov 14 low of $2,536. On the bullish side, if buyers reclaim $2,700, the next resistance would be the December 12 peak at $2,726, followed by the all-time high at $2,790.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
