- The price of Gold registers a modest recovery from the one-week low reached this Monday.
- Geopolitical tensions, lower US bond yields and USD benefit the safe haven XAU/USD.
- Expectations of a less dovish Fed warrant caution for bulls ahead of this week’s FOMC meeting.
The price of Gold (XAU/USD) rises after a decline in the Asian session to the region of $2,644-2,643, or a one-week low, and for now, appears to have stopped its sharp correction from the high of more than a month reached last Thursday. The US Dollar (USD) begins the new week on a softer note amid a modest pullback in US Treasury yields. Additionally, geopolitical risks and uncertainties over US President-elect policies .US, Donald Trump, turn out to be key factors offering support to the safe haven precious metal.
Meanwhile, investors now appear convinced that the Federal Reserve (Fed) will take a more cautious stance on cutting interest rates next year amid signs that progress in reducing inflation toward the target of the 2% has stagnated. This should act as a tailwind for US bond yields and the USD, which in turn limits the upside of the non-yielding Gold price. Traders could also refrain from placing aggressive directional bets and opt to wait for the outcome of the FOMC’s expected two-day monetary policy meeting on Wednesday.
Gold Price Attracts Some Safe Haven Flows Amid Geopolitical Risks; upside potential appears limited
- Israel has agreed to plans to allocate state money to expand its presence and double its population in the occupied Golan Heights, raising the risk of further escalation of tensions in the region.
- Israeli strikes in Gaza killed at least 53 Palestinians, while the Israeli military said its air and ground forces in the north of the enclave killed dozens of militants and captured others.
- NATO Secretary General Mark Rutte has warned that Russian President Vladimir Putin wants to wipe Ukraine off the map and could go after other parts of Europe next.
- The Syrian Observatory for Human Rights said Israeli warplanes attacked missile launchers in southern Syria and carried out an airstrike on radars in eastern Syria.
- The CME Group’s FedWatch tool indicates that traders are pricing in more than 93% the chance that the Federal Reserve will cut borrowing costs by 25 basis points on Wednesday.
- The US Consumer Price Index (CPI) and Producer Price Index (PPI) released last week reinforced expectations that the Fed will slow the pace of its rate cut cycle next year.
- The 10-year US government bond yield rose to a three-week high on Friday amid bets on a less dovish Fed, which should limit gains in the non-yielding Gold price.
- Monday’s economic docket includes the release of preliminary global PMIs, which could influence overall risk sentiment and provide some boost to the safe-haven precious metal.
- However, the focus will be on the crucial FOMC decision on Wednesday. Traders will also take cues from the accompanying policy statement and comments from Fed Chair Jerome Powell.
Gold price needs to break below the $2,643 zone for the bears to take control in the short term
From a technical perspective, the low of the Asian session, around the $2,644-2,643 area, coincides with a congestion zone. Some follow-through selling has the potential to drag the price of Gold towards the $2,625 region en route to the monthly low, around the $2,614 zone and the fundamental support of $2,605-2,600. A convincing break below the latter will be seen as a new trigger for the bears and pave the way for deeper losses.
On the other hand, the $2,665-2,666 region now appears to act as an immediate hurdle ahead of the $2,677 zone, above which Gold price could aim to reclaim the round figure of $2,700. The subsequent move higher could extend further towards the monthly high, around the $2,726 area, which if broken decisively will set the stage for a near-term appreciating move.
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.
