- Gold price attracts buyers for the fourth consecutive day and climbs to over a one-week high.
- Geopolitical risks stemming from the Russia-Ukraine conflict benefit the safe-haven XAU/USD.
- Elevated US bond yields underpin the US Dollar and might cap the non-yielding yellow metal.
Gold price (XAU/USD) prolongs its weekly uptrend for the fourth straight day and climbs to the $2,660 area, or a fresh one-and-half-week high during the Asian session on Thursday. Mounting geopolitical uncertainties, fueled by escalating Russia-Ukraine tensions, continue to drive haven flows towards traditional safe-haven assets and assist the precious metal to recover further from a two-month low touched last week. Bullion, which is considered a hedge against inflation, further seems to benefit from expectations that US President-elect Donald Trump’s proposed tariffs could spur inflationary pressures.
That said, high inflation could limit the scope of the Federal Reserve (Fed) to ease monetary policy. Furthermore, worries that Trump’s debt-funded tax cuts would lead to larger budget deficits remain supportive of elevated US Treasury bond yields. This, in turn, assists the US Dollar (USD) to hold steady just below the year-to-date (YTD) peak touched last week and might act as a headwind for the non-yielding Gold price. Apart from this, the prevalent risk-on mood – as depicted by a generally positive tone around the equity markets – warrants caution before placing aggressive bullish bets around the XAU/USD.
Gold price continues to attract haven flows amid worsening Russia-Ukraine tensions
- Geopolitical tensions intensified after Russian President Vladimir Putin lowered the threshold for nuclear strikes and underpinned the safe-haven Gold price for the fourth straight day on Thursday.
- Investors seem convinced that US President-elect Donald Trump’s proposed expansionary policies could accelerate inflation and force the Federal Reserve to slow the pace of its rate-cutting cycle.
- Moreover, a slew of influential Fed officials recently cautioned on further policy easing, which remains supportive of elevated US Treasury bond yields and keeps the US Dollar near the YTD high.
- Lisa Cook, a member of the Federal Reserve Board of Governors, noted on Wednesday that the central bank might get forced into a pause on interest rate cuts if inflation progress slows down.
- Separately, Fed Governor Michelle Bowman said that the progress on inflation appears to have stalled and that the US central bank should pursue a cautious approach to monetary policy.
- Meanwhile, Boston Fed President Susan Collins said that more interest rate cuts are needed, but policymakers should proceed carefully to avoid moving too quickly or too slowly.
- According to the CME Group’s FedWatch Tool, traders are currently pricing in just over a 50% chance that the Fed will lower borrowing costs at its December monetary policy meeting.
- The yield on the benchmark 10-year US government advanced by the most in a week on Wednesday, which, along with a positive risk tone, might cap the safe-haven precious metal.
- Thursday’s US economic docket features the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales data later during the North American session.
- Investors will also scrutinize speeches from Fed policymakers for cues about the future rate-cut path, which will drive the USD and provide some impetus to the non-yielding XAU/USD.
Gold price bulls might now wait for a sustained move beyond the $2,660 immediate hurdle
From a technical perspective, the intraday move-up faces some resistance near the 50% retracement level of the recent pullback from the all-time peak touched in October. The said barrier is pegged near the $2,660 area, above which the Gold price could accelerate the momentum towards the $2,670-2,672 congestion zone. Some follow-through buying could allow the XAU/USD to aim at reclaiming the $2,700 round figure.
On the flip side, the $2,635-2,634 area, or the 38.2% Fibonacci retracement level, now seems to protect the immediate downside ahead of the $2,622-2,620 region and the $2,600 round figure. A convincing break below the latter could make the Gold price vulnerable and expose the 100-day Simple Moving Average (SMA), around the $2,557 region, with some intermediate support near the $2,570 zone. This is followed by last week’s swing low, around the $2,537-2,536 area, which if broken decisively will be seen as a fresh trigger for bearish traders and set the stage for deeper losses.
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.