- Gold price regains positive traction amid modest pullback in US bond yields
- The Fed’s hawkish expectations favor USD bulls and should cap the precious metal.
- The risk-on momentum could further contribute to keeping the XAU/USD pair capped.
The price of Gold (XAU/USD) attracts some buyers during the Asian session on Tuesday and reverses some of the previous day’s pullback decline from the vicinity of a one-month high reached last week. Reports that US President-elect Donald Trump’s top economic advisers are considering a gradual increase in tariffs to avoid a surge in inflation trigger a modest pullback in US Treasury yields .US and benefit the yellow metal without performance. Apart from this, the rally lacks an obvious catalyst and is likely to remain limited amid hawkish expectations from the Federal Reserve (Fed).
The upbeat US Nonfarm Payrolls (NFP) report released on Friday reinforced bets on a slower pace of interest rate cuts by the US central bank this year. This, in turn, helps the US Dollar (USD) halt its profit-taking slide from a more than two-year high hit on Monday and should act as a tailwind for US bond yields. Meanwhile, easing fears over disruptive trade tariffs under Trump 2.0 are boosting investor confidence, further justifying some caution before opening new bullish positions around the price of Gold. Traders now await the Index. Prices of Production (IPP) of the US to get a new boost.
Gold Price Draws Support from Decline in US Bond Yields; upside potential appears limited amid Fed hawkish expectations
- Bloomberg, citing people familiar with the matter, reported Monday that President-elect Donald Trump’s economic advisers are considering a program to gradually increase tariffs month by month.
- The approach, aimed at increasing bargaining power and helping avoid a surge in inflation, triggers a modest pullback in US Treasury yields and reignites demand for the price of Gold.
- The red-hot US jobs report cemented expectations that the Federal Reserve will proceed cautiously in cutting rates this year, helping the US dollar halt Monday’s pullback from a more than two-year high.
- The Fed’s hawkish outlook should also limit the downward correction in US 10-year Treasury yields from a 14-month high and keep any further rise limited for the non-yielding yellow metal. .
- US President-elect Donald Trump has repeatedly vowed to end the conflict in Ukraine and said he will meet Russian President Vladimir Putin “very soon” after taking office next week.
- The US indicated that a ceasefire agreement is on the verge of success, while Hamas said talks are progressing well. Two Israeli officials said Hamas will release 33 hostages in the first phase of the ceasefire agreement.
- Investors now eagerly await key inflation data, starting with the Producer Price Index later today, followed by US consumer inflation figures on Wednesday, for significant momentum.
Gold price bulls have the advantage as long as they remain above the confluence support of the 100-day EMA and the trend line, near $2,610
From a technical perspective, any subsequent strength beyond the $2,676-2,677 area will likely face some resistance near the $2,690 area before the $2,700 mark. Some follow-through buying beyond the latter will set the stage for an extension of a more than three-week uptrend and lift the price of Gold to the $2,716-2,717 hurdle en route to December’s monthly high, around the region. of $2,726.
On the downside, the $2,657-2,656 area, Monday’s low, could continue to protect the immediate downside. A convincing break below, however, could make Gold price vulnerable to accelerating the decline towards the $2,635 region. The downward trajectory could extend further towards the confluence of $2,610, which comprises the 100-day SMA and a multi-week ascending trend line.
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.
