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Gold price stands firm near $2,650 hurdle; modest USD strength caps the upside

  • Gold price ticks higher on Monday amid bets for another Fed rate cut in December. 
  • Geopolitical tensions and trade war fears further benefit the safe-haven commodity.
  • Expectations for a less dovish Fed underpin the USD and cap gains for the XAU/USD.

Gold price (XAU/USD) sticks to its positive bias through the first half of the European session, though it remains below the $2,650-2,655 supply zone and remains confined in a familiar range held over the past two weeks or so. The US Nonfarm Payrolls (NFP) report released on Friday reaffirmed bets that the Federal Reserve (Fed) will lower borrowing costs in December. This, in turn, keeps the US Treasury bond yields depressed and turns out to be a key factor acting as a tailwind for the non-yielding yellow metal.

Apart from this, political disruption in South Korea, geopolitical tensions and trade war fears offer some support to the safe-haven Gold price. However, a modest US Dollar (USD) strength, bolstered by bets that the Fed will adopt a less dovish stance on the back of speculations that US President-elect Donald Trump's policies will boost inflation, caps gains for the XAU/USD. Traders also seem reluctant and might opt to wait on the sidelines ahead of the release of the US consumer inflation figures, due later this week. 

Gold price might struggle to build on intraday gains amid bets for less dovish Fed and modest USD strength

  • The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) rose by 227K in November, marking a notable rise from the previous month's upwardly revised reading of 36K and was better than the 200K expected.
  • Other details of the report revealed that the Unemployment Rate ticked up, as expected, to 4.2% during the reported month, from 4.1% in October, lifting bets that the Federal Reserve will lower rates by 25 basis points at its meeting this month.
  • The University of Michigan’s preliminary survey for December showed that the gauge of US consumer sentiment rose to 74.0 in December from the 71.8 previous and one-year inflation expectations climbed to 2.9% from 2.6% in November. 
  • Cleveland Fed President Beth Hammack noted that the economic landscape calls for a modestly restrictive monetary policy, though said the market view of one more interest rate cut between now and late January was reasonable.
  • Adding to this, San Francisco Fed President Mary Daly warned that despite data still leaning toward achieving the inflation target, the central bank might still step in with additional interest rate hikes if price growth begins to spiral once again.
  • Separately, Chicago Fed President Austan Goolsbee stated that the labor market appears stable and that the progress on inflation is encouraging, while any pause in the rate-cutting would come if conditions in inflation or the labor market change. 
  • Meanwhile, Fed Governor Michelle Bowman said that she would prefer that the US central bank proceeds cautiously and gradually in lowering the policy rate as the underlying inflation remains elevated, uncomfortably above the 2% target.
  • This comes amid hopes that US President-elect Donald Trump's expansionary policies will rekindle inflationary pressures and might force the Fed to adopt a less dovish stance, which, in turn, might cap gains for the non-yielding Gold price.

Gold price bulls await breakout above short-term trading range hurdle near $2,650-2,655 area

From a technical perspective, any further strength above the $2,648-2,650 supply zone is likely to confront some resistance near the $2,666 region. Some follow-through buying beyond the $2,672 hurdle will be seen as a key trigger for bulls and allow the Gold price to aim to reclaim the $2,700 round figure. The momentum could extend further towards the next relevant hurdle near the $2,722 area. 

On the flip side, weakness below the $2,630 immediate support could drag the Gold price back towards the $2,614-2,613 area. This is followed by the $2,605-2,600 support zone and the 100-day Simple Moving Average (SMA), around the $2,586-2,585 region. A convincing break below the latter should pave the way for deeper losses and expose the November swing low, around the $2,537-2,536 area.

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.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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