Gold climbs on rate cut expectations, safe-haven flows ahead of US NFP
- Gold drifts higher in Monday’s Asian session.
- Fed rate cut expectations and safe-haven flows provide some support to the Gold price.
- Traders await the US NFP data for October and November on Tuesday for fresh impetus.
Gold price (XAU/USD) climbs to seven-week highs above $4,325 during the Asian trading hours on Monday. The precious metal extends its upside amid the prospect of interest rate cuts by the US Federal Reserve (Fed) next year. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Additionally, uncertainty and the risk-off sentiment could boost the safe-haven flows, benefiting the yellow metal price.
Nonetheless, hawkish remarks from Fed officials last week could lift the US Dollar (USD) and weigh on the USD-denominated commodity price. Traders will take more cues from the speeches by Fed Governor Stephen Miran and New York Fed President John Williams later on Monday.
The US employment report for October and November will take center stage on Tuesday, including Nonfarm Payrolls (NFP), Average Hourly Earnings and Unemployment Rate. These reports could provide more clarity on the labor market's health and likely influence expectations for the Fed's January meeting.
Daily Digest Market Movers: Gold rises as Fed delivered its final 2025 rate cut, safe-haven flows
- Bloomberg reported on Sunday that a mass shooting at Bondi Beach in the Australian city of Sydney had killed at least 16 people and wounded 40. Australian Prime Minister Anthony Albanese said in a press conference early Monday that the shooting was a “targeted attack” on the Jewish community. He had previously described the incident as an “act of evil antisemitism, terrorism that has struck the heart of our nation.”
- Chicago Fed President Austan Goolsbee said on Friday that he “felt the more prudent course would have been to wait for more information” before cutting rates again after a government shutdown delayed several key economic reports in October and November.
- Cleveland Fed President Beth Hammack stated that the central bank should keep rates high enough to continue putting downward pressure on inflation.
- The US Fed last week announced its third and final quarter-point rate reduction this year, cutting interest rates by 25 basis points (bps) to a target range of 3.50% to 3.75%.
- Markets are currently pricing in nearly a 76% probability that the Fed will hold interest rates steady in January 2026, compared with a 70% chance just before the December rate cut announcement, according to the CME FedWatch tool.
Gold maintains its constructive outlook in the longer term
Gold price trades in positive territory on the day. According to the four-hour timeframe, the positive outlook of the precious metal remains in play as the price holds above the key 100-day Exponential Moving Average. The Bollinger Band widens, suggesting a strong bullish trend. Furthermore, the upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 68.75. This displays the bullish momentum for the yellow metal.
On the bright side, the first upside barrier to watch is in the $4,345-$4,355 zone, representing the upper boundary of the Bollinger Band and the high of December 12. Sustained upside momentum could take XAU/USD back up to an all-time high of $4,381. Further north, the next resistance level is located at the $4,400 psychological mark.
On the downside, the initial support level for the yellow metal is seen at the low of December 12 at $4,257. More bearish candlesticks reflect a continuation of downside pressure, possibly dragging the price down to the next bearish target at $4,200, the 100-day EMA. The next contention level emerges at $4,166, the lower limit of the Bollinger Band.
Risk sentiment FAQs
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.
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.
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.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
