- Gold gains 0.67% in the late session, but the geopolitical conflict keeps it above $2,600 despite monthly losses.
- The escalation in the conflict between Russia and Ukraine and tensions in the Middle East underline the appeal of Gold as a safe haven.
- Market optimism grows on a 25bp Fed rate cut in December, bolstering the Bullion’s near-term outlook.
The price of Gold advanced late during the North American session on Friday, rising 0.67%, although it remains poised to post monthly losses of more than 3%. Geopolitical risks continue to drive price action with the non-yielding metal fluctuating around $2,600. XAU/USD is trading at $2,652 after hitting a daily low of $2,634.
Geopolitical tensions eased in the Middle East after Israel and Lebanon agreed to a ceasefire. However, both countries accused each other of violating the agreement.
Recently, Sky News Arabia revealed that the Israeli Army announced the bombing of a mobile rocket platform belonging to Hezbollah in southern Lebanon in an airstrike.
Gold prices could continue to be in demand after the escalation of the conflict between Russia and Ukraine. During the week, Russia attacked Ukraine’s energy infrastructure and threatened to attack with ballistic missiles. Russia’s response is a retaliation to the US and UK authorizing the deployment of missiles manufactured in both countries within Russia.
In November, Bullion prices were hampered by the victory of US President-elect Donald Trump on November 5. Some of his proposals are prone to inflation, such as imposing tariffs and cutting taxes.
This boosted the Dollar, which is set to end November with gains of more than 2%, according to the US Dollar Index (DXY). Speculation that the new US administration’s fiscal policy is expansionary could prevent the Federal Reserve (Fed) from continuing to lower interest rates.
The election of Scott Bessent as Treasury Secretary for the incoming Trump administration calmed markets and bolstered gold prices last week. Investors see Bessent as market-friendly, which could moderate Trump’s tough trade policies.
Consequently, market participants are optimistic that the Fed will cut rates by 25 basis points at the December meeting. According to the CME FedWatch tool, the swaps market sees a 66% probability of such a decision.
Daily Market Summary: Gold Price Supported by Falling US Real Yields
- Gold prices recovered as US real yields fell seven basis points to 1.92%.
- The yield on the 10-year US Treasury bond falls six basis points to 4.182%.
- The US Dollar Index (DXY), which tracks the performance of the dollar against six currencies, was down 0.37% at 105.75 on the day. However, it is set to print gains of over 1.79% for the month.
- The latest US GDP figures and underlying Personal Consumption Expenditure (PCE) Price Index suggest that the US economy remains robust and policy easing may need to be paused.
- However, Fed officials seemed convinced that further easing is needed and could cut rates at the December meeting. However, they took a more cautious stance, opening the door to pause the relaxation cycle.
- Data from the Chicago Board of Trade, via the December federal funds rate futures contract, shows that investors are estimating a 24 bp Fed easing by the end of 2024.
Technical outlook: Gold price rises but remains below the 50-day SMA
Gold prices remain skewed upward but contained within the 50-day and 100-day Simple Moving Averages (SMA), each at $2,668 and $2,572, respectively. Buyers need to break the 50-day SMA in order to test $2,700. With further strength, the next resistance level for XAU/USD would be the psychological $2,750 and the all-time high at $2,790.
On the other hand, if sellers drag the unperforming metal below $2,600, they could target the 100-day SMA, ahead of the Nov. 14 low of $2,536.
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.
