- Gold gains 1% on Friday, set to end the week with gains of 0.20%.
- US PPI data came in slightly above expectations, suggesting inflation is slowing but remains above target, while University of Michigan Consumer Sentiment highlights concerns about rising cost of goods. life.
- Despite higher US Treasury yields, with the 10-year note rising to 4.081%, Bullion prices remain supported as the Fed is expected to cut rates later this year.
Gold rose more than 1% on Friday, with the yellow metal set to end the week with modest gains of 0.20% after inflation data revealed on Friday and Consumer Price Index (CPI) report on Thursday limited the advance of the dollar. At the time of writing, XAU/USD is trading at $2,658.
Mixed economic data supported prices of the yellow metal. The US Bureau of Labor Statistics (BLS) revealed that prices paid by producers were close to consensus, indicating that inflation is trending downward but above expectations. At the same time, Consumer Sentiment data from the University of Michigan (UoM) for October showed a deterioration among Americans due to higher costs of living.
Although the data did not affect the US Dollar, which remained firm, Bullion prices rose. This despite US Treasury bond yields, particularly the 10-year note, gaining a basis point and a half to 4.081%.
Chicago Fed President Austan Goolsbee crossed the lines on Bloomberg, praising progress on inflation and the labor market. He added that despite the strong employment report for September, there are no signs of overheating.
“The PPI numbers were favorable for precious metals market bulls and suggest the Fed remains on track to deliver two quarter-point rate cuts this year,” said Kitco analyst Jim Wyckoff.
Next week, the US economic calendar remains busy, with Fed officials and the New York Empire State Manufacturing Index continuing to grab the headlines. For the second part of the week, Retail Sales, Initial Jobless Claims and housing data could dictate the path of the Fed’s monetary policy.
Daily movements and market drivers: The price of Gold rises despite high yields in the US and a strong Dollar
- Gold price finally broke the $2,650 barrier, but needs to achieve a daily close above that level to start trading in the $2,650-$2,685 range.
- Consequently, the Dollar posts gains as seen with the US Dollar Index (DXY) gaining 0.02% to 102.90.
- The US Producer Price Index (PPI) for September rose 1.8% year-on-year, higher than the 1.6% expected but lower than the 1.9% in August. Core PPI rose 2.8% year-on-year, beating forecasts and rising from September’s estimate of 2.7% and August’s 2.6%.
- On a monthly basis, the PPI was flat at 0%, down from the estimated 0.1% and down from 0.2% in August. As expected, the core PPI fell to 0.2%, down from 0.3% the previous month.
- The University of Michigan (UoM) Consumer Sentiment Index deteriorated from 70.1 to 68.9, falling short of expectations of 70.8. One-year inflation expectations were revised upward from 2.7% to 2.9%.
- The combination of a slightly higher Consumer Price Index (CPI) and a weak US jobs report on Friday could lead to additional rate cuts by the Federal Reserve.
- Data from the Chicago Board of Trade, based on the December federal funds rate futures contract, indicates that investors estimate a 49 basis point (bp) easing by the Fed by the end of 2024.
XAU/USD Technical Analysis: Gold price uptrend resumes but remains below $2,650
Gold’s uptrend has resumed as the yellow metal posted consecutive bullish daily candles, hinting that buyers could challenge the yearly high in the near term. According to the Relative Strength Index (RSI), momentum favors buyers, posting higher readings in bullish territory.
That being said, the first resistance for XAU/USD would be the October 4 high at $2,670. Once surpassed, the next stop would be the yearly high of $2,685, before the $2,700 mark.
Conversely, if XAU/USD falls below $2,650, this could support a drop towards $2,600. A break of the latter will expose the 50-day SMA at $2,545.
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.
