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The price of Gold is trading higher due to the Fed’s moderate expectations and the weakening of the Dollar, it lacks continuation

  • The price of Gold rises for the second consecutive day and is supported by a combination of factors.
  • Hope that interest rates have peaked around the world acts as a tailwind amid widespread US Dollar weakness.
  • A softer risk tone also contributes to the rally, although bulls prefer to wait for the US NFP on Friday.

The price of Gold (XAU/USD) attracts some buying for the second day in a row on Thursday, although it lacks follow-through and remains stuck in a familiar range maintained for the last three days. The fundamental backdrop appears to lean firmly in favor of the bulls amid growing acceptance that the Federal Reserve (Fed) has ended its monetary policy tightening campaign and will begin cutting rates as early as March 2024. Furthermore, The recent dovish rhetoric from officials at the European Central Bank (ECB), along with the decision by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) to keep rates stable, has fueled hopes that the interest rates have peaked worldwide. This, in turn, is considered a key factor that acts as a tailwind for the yellow metal, which offers no returns.

Meanwhile, the strong rebound in demand for the Japanese Yen (JPY), driven by expectations of a hawkish turn from the Bank of Japan (BOJ), prompts some profit-taking around the US Dollar (USD). In fact, the DXY Dollar Index, which measures the strength of the dollar against a basket of currencies, suffers a sharp correction from the two-week high reached on Wednesday and becomes another factor supporting commodity prices. premiums denominated in dollars. Apart from this, the prevailing cautious mode in the markets turns out to be another factor contributing to the modest intraday rise. The bulls, however, seem reluctant and prefer to wait for the release of US monthly employment data on Friday.

The popular nonfarm payrolls (NFP) report will play a key role in influencing the outlook for the Fed’s near-term monetary policy. This, in turn, will boost demand for the Dollar and provide a significant boost to the price of Gold. Meanwhile, traders could follow the weekly US Initial Jobless Claims data on Thursday to look for short-term opportunities. later during the American session.

Daily Market Summary: Gold Price Supported by Fed Rate Cut Expectations and USD Weakness

  • Weak US employment data released this week reinforced expectations that the Federal Reserve will not raise interest rates further and continues to act as a tailwind for the price of Gold.
  • The Labor Department’s JOLTS report on Tuesday showed that job openings fell to their lowest level in 2 1/2 years in October, indicating that interest rates were holding back demand for workers.
  • The ADP report also pointed to a cooling labor market and indicated that private sector payrolls rose by 103,000 in November, down from the downwardly revised figure of 106,000 the previous month.
  • Current market pricing suggests a near 66% chance of a rate cut in March, which has pushed US bond yields to three-month lows and lent further support to the XAU/USD .
  • China’s mixed trade balance data showed imports unexpectedly fell 0.6% in November, fueling concerns about weak domestic demand amid recession risk.
  • Israel launched the next phase of its ground offensive against the Palestinian group Hamas in the southern Gaza Strip and intensified attacks around Gaza’s second largest city, Khan Younis.
  • The dollar retreats sharply from two-week highs reached on Wednesday and acts as a tailwind for the yellow metal, although bulls seem reluctant to open new positions ahead of Friday’s US NFP.
  • Monthly US employment data will influence the Fed’s near-term outlook, which in turn will boost demand for dollars and give fresh impetus to commodities.
  • Weekly jobless claims will be released today, which are expected to show that first-time jobless filers increased from 218,000 to 222,000 during the week of December 1.

Technical Analysis: Gold price widens range play, bulls in control above $2,000 psychological level

From a technical point of view, the weekly low around the $2,010-$2,009 area, which coincides with a breakout point of horizontal resistance, could continue to protect the immediate decline ahead of the psychological level of $2,000. . A convincing break below this last level could set the stage for an extension of this week’s sharp pullback from the all-time high and drag the price of Gold towards the horizontal support of $1,977-$1,976. The corrective decline could extend further towards the important 200-day SMA, currently near the $1,950 area.

On the other hand, the upper end of a multi-day range, around the $2,035-$2,038 area, is likely to act as a strong immediate barrier. Next, there is resistance near the $2,045 level, above which Gold price could rise to the $2,071-$2,072 area en route towards the round $2,100 level. Furthermore, the emergence of a golden cross, with the 50-day SMA above the 200-day SMA, suggests that the bulls could aim to retest the all-time high, around the $2,144-2,145 area. $.

Frequently asked questions about Gold

Why invest in Gold?

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, aside 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.

Who buys more Gold?

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 Turkey are rapidly increasing their gold reserves.

What correlation does Gold have with other assets?

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.

What does the price of Gold depend on?

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

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