- Gold extends its recovery to $2,650, shrugging off a rising US dollar amid demand for safe-haven assets.
- The escalation of the conflict between Russia and Ukraine and Putin’s nuclear threats contribute to the rise of gold.
- Comments from Fed governors provide mixed outlooks on the possible direction of US monetary policy in December.
Gold price rises extending gains for third consecutive day, shrugging off a buoyant US dollar as risk aversion boosts safe-haven assets. The gold metal is up over 3.40% for the week, with buyers targeting the $2,700 mark. XAU/USD is trading at $2,650, up 0.69%.
Gold’s slide toward a two-month low of $2,536 can be attributed primarily to investors taking profits following President Donald Trump’s victory in the US election. Fears that some of his proposals could spark a reversal Accelerating inflation caused US Treasury yields to skyrocket and prop up the Dollar.
However, gold prices had risen due to the escalation of the conflict between Russia and Ukraine.
On Tuesday, Russian President Vladimir Putin authorized the use of nuclear weapons in retaliation against the West. The White House has reportedly authorized Ukraine’s use of American weapons inside Russia, according to officials.
Meanwhile, the US currency advances 0.51% on the day, according to the US Dollar Index (DXY), which tracks the performance of the Dollar against six other pairs. The DXY is at 106.69 after sinking to a five-day low of 106.11.
Recently, Fed Board Governors Lisa Cook and Michelle Bowman failed to clarify the outcome of the December Federal Open Market Committee (FOMC) monetary policy meeting.
Cook remains confident that the Fed will reduce inflation toward the 2% target, but did not reveal whether he will support a rate cut next month. Bowman added that despite seeing “considerable progress” in inflation, it appears to have “stalled in recent months,” meaning the Fed needs to be cautious. He commented that neutral rates may not be as low as expected, according to some FOMC officials.
Traders reduced the odds of a 25 basis point rate cut at the December meeting. The CME FedWatch tool sees a 55% chance of lowering rates, up from a 58% chance a day earlier.
Ahead of this week, the US economic calendar will include initial jobless claims, preliminary S&P Global PMIs and the final reading of the University of Michigan (UoM) Consumer Sentiment Index for November.
Daily Market Summary: Gold Price and Dollar Advance
- Gold prices recovered even as US real yields rose one basis point to 2.07%.
- US Treasury yields are rising, with the benchmark 10-year rate rising one basis point to 4.41%.
- On Thursday, US initial jobless claims are expected to rise from 217,000 to 220,000 for the week ending November 16.
- US existing home sales are projected to increase from 3.854 million to 3.93 million.
- According to data from the Chicago Board of Trade via the December federal funds futures contract, investors are pricing in 22 basis points of Federal Reserve rate cuts by the end of 2024.
- On Monday, US President Joe Biden authorized Ukraine’s use of long-range missiles inside Russia, CNN revealed. The decision comes in reaction to the deployment of thousands of North Korean troops in support of Moscow’s war effort.
- Donald Trump’s policies of higher tariffs and lower taxes are potential drivers of inflation and could slow the Fed’s easing cycle.
Technical Outlook: Gold Buyers Will Challenge 50-Day SMA
Gold price is biased higher, but buyers must overcome key resistance levels. If XAU/USD breaks above the 50-day SMA at $2,658, it could find acceptance around $2,700. A break of the latter will expose the November 7 high of $2,710 and the psychological figure of $2,750.
On the contrary, sellers will have the advantage if the non-performing metal falls below $2,600. Further decline is expected, with the next support being the 100-day SMA at $2,550. Bears could target the November 14 low of $2,536, followed by a drop in XAU/USD to $2,500.
The Relative Strength Index (RSI) remains bearish but is approaching the neutral line, indicating that gold buyers are gaining momentum in the short term.
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.
