Gold extends gains on geopolitical tensions and China buying

The increasing uncertainty in the Middle East and China’s purchases support Gold’s recovery.
The US Dollar hesitates as strong US labour data did not curb hopes of further Fed interest-rate cuts next week.
XAU/USD extends gains beyond the critical $2,665 price zone, needs to confirm channel breakout.

Gold price (XAU/USD) nudges higher on Monday’s early European session, favoured by its safe-aven status amid the increasing uncertainty in the Middle East after the fall of the Bashar al-Assad regime in Syria.

Beyond that, The People’s Bank of China (PBoC) announced over the weekend that it resumed Gold purchases in November after a six-month pause, which is giving an additional boost to the precious metal.

Data from the US released on Friday revealed that the country’s labour market remains solid, but the increasing unemployment rate confirmed expectations that the Federal Reserve (Fed) would cut rates by 25 bps next week. This, and a mild risk appetite, are keeping US Dollar upside attempts limited.

Daily digest market movers: Fed easing, geopolitical concerns and China boost Gold

China’s Gold reserves increased by 160,000 ounces to 72.96 million ounces in November from 72.80 million ounces in November. This has boosted expectations of further Gold appreciation and is likely to underpin demand for the precious metal.
On Friday, Nonfarm Payrolls (NFP) data showed that the US economy added 227,000 new jobs in November, beating expectations of a 200,000 increase.
The Unemployment rate, however, ticked up to 4.2% from 4.1% in the previous month, which kept hopes of a Fed rate cut in December intact.
The CME Group’s Fed Watch shows an 87% chance of a quarter-point rate cut by the Fed next week, up from less than 70% last week.
The Benchmark 10-year Treasury yields are ticking up on Monday after losing about 20 basis points in the last two weeks. This has offset the positive impact of the Trump trade and is adding pressure on the US Dollar.

Technical analysis: XAU/USD defies the channel top at $2,665

Gold is showing an increasing bullish momentum on Monday as the positive trend from last week's lows gathers steam. With fundamentals in its favour, the pair is currently battling to confirm a bullish breakout of the top of the last two weeks’ channel at $2,665, trading a couple of $ above it.

Above here, the next target would be the $2,690 intra-day level, and the November 24 high, at $2,720. On the downside, the bottom of the mentioned channel is at $2,620. Below here, the next support is the November 25 low, at $2,605.

Gold 4-hour Chart

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.