- Gold declines but holds to weekly gains as mixed US economic data keeps rate cut expectations alive.
- Market braces for the Federal Reserve's decision on December 18, with a 93% likelihood of a 25 bps cut anticipated.
- Upcoming US economic data and Fed Chair Powell’s commentary will be critical for future market direction.
Gold price fell for the second consecutive day as high US Treasury bond yields weighed on the yellow metal. Traders await the Federal Reserve's (Fed) interest rate cut next week. The XAU/USD trades at $2,657, down 0.80%.
Despite posting losses, Bullion is up almost 1% in the week following a tranche of US economic data releases. US inflation data on the consumer and producer sides was mixed, but the latest Initial Jobless Claims report gave the green light to investors for pricing in the Fed’s December rate cut.
Traders' focus shifted to the Fed’s monetary policy meeting on December 17-18, with traders predicting a 93% chance of a 25 basis points (bps) rate cut via data from the Chicago Board of Trade (CBOT).
Following the decision, investors will eye Fed Chair Jerome Powell's press conference, looking for clues regarding the policy path for 2025.
Second-tier data featured on Friday showed that US Import Prices rose marginally, while Export Prices dipped in November.
The non-yielding metal extended its losses after US Secretary of State Antony Blinken said that he has seen encouraging signs that a Gaza ceasefire is possible.
Next week, the US economic docket will feature the release of S&P Global Flash PMIs, Retail Sales, Industrial Production, the Federal Open Market Committee (FOMC) policy decision, and the release of the core Personal Consumption Expenditures (PCE) Price Index.
Daily digest market movers: Gold price treads water amid US Treasury yields jump
- Gold prices plunged as US real yields rose almost five basis points to 2.066%, up from 1.996%.
- The US 10-year Treasury bond yield rises four-and-a-half basis points to 4.375%, weighing on the golden metal.
- The US Dollar Index remains firm at 107.05, virtually unchanged.
- Import Prices for November ticked up 0.1% MoM, unchanged compared to October but exceeded forecasts of a -0.2% deceleration.
- Export Prices for the same period dropped from 1% to 0% MoM, above estimates of -0.2%.
- Sources cited by Reuters noted, "We have reached the time of year when convictions are low, and positions are being held on a short leash, meaning any price reversal - in both directions - will quickly be met with position-squaring."
- Analysts at Goldman Sachs noted that China’s central bank “may even increase Gold demand during periods of local currency weakness to boost confidence in their currency.”
Technical outlook: Gold price retreats, sellers eye 100-day SMA
Gold price continued its correction after hitting a two-month peak of $2,726 before sliding toward the $2,650 region. It seems the golden metal found its fair value price within the $2,600-$2,700 range near the 50 and 100-day Simple Moving Averages (SMAs) at $2,670 and $2,597, respectively.
A weekly close below the 50-day SMA could motivate sellers to drive Gold’s price lower. Key support levels lie at $2,600, the 100-day SMA and near November 14 low of $2,536. On the bullish side, if buyers reclaim $2,700, the next resistance would be the December 12 peak at $2,726, followed by the record high at $2,790.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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