Gold remains above $2,600 amid geopolitical tensions, Fed easing speculation
- Gold price remains steady at $2,637 amid thin Thanksgiving trading.
- Trump's tariff threats weigh on Gold, but easing rhetoric towards Canada and Mexico offers some relief.
- Market eyes 70% chance of a 25 bps Fed rate cut, supporting gold as Treasury yields stay subdued.
Gold price consolidated around $2,630 on Thursday amid thin liquidity trading as US markets are closed for Thanksgiving. Geopolitics continued to drive the price of non-yielding metal, which dwindled during the last three trading days. The XAU/USD trades at $2,637, virtually unchanged.
Market mood improved on Thursday, partly due to Israel and Lebanon's 60-day ceasefire. However, the escalation of the Russia-Ukraine conflict could keep Bullion prices firmly above $2,600.
US President-elect Donald Trump's tariff threats on China, Canada, and Mexico limited the advance of the golden metal, with traders flying towards the safety of the Greenback. Sources cited by Reuters said, “It did increase a bit of concern about the possible repercussions from these two countries. So that continues to remain an important support factor for gold.”
Following Trump’s remarks, Gold tumbled due to risks linked to his threats. However, recent developments suggest that the US President-elect has eased his rhetoric to Canada and Mexico.
Gold recovered after the report and as market participants eyed another 25 basis point interest rate cut by the Federal Reserve at the upcoming December meeting.
The swaps market sees a probability of 70% of such a decision, according to the CME FedWatch Tool, as the odds improved from around 55% at the beginning of the week.
This would keep US Treasury bond yields depressed, which could undermine the Greenback.
Ahead this week, the US economic docket is absent, barring a surprise of a Federal Reserve speaker in the media. Next Monday, the schedule will be busy with the release of S&P Global and ISM Manufacturing PMI, and Fed Governor Christopher Waller crossing the wires.
Daily digest market movers: Gold prices fluctuate near $2,630
- Gold prices recovered as US real yields remained unchanged at 1.9906%.
- US data released on Wednesday showed the economy growing 2.8% in Q3, below estimates but unchanged from the preliminary estimate.
- This, along with the latest Core PCE Price for October coming at 2.8% YoY up from estimates of 2.7%, suggests the disinflation process has stalled and that the Fed might begin to pause cutting rates.
- Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.
Technical outlook: Gold price advances modestly, clings to $2,630
Gold price is consolidated within the 50 and 100-day Simple Moving Averages (SMAs), each at $2,668 and $2,572, respectively. Nevertheless, some upside in the short term is seen due to Gold’s being slightly pressed toward the former, but buyers need to clear key resistance levels.
If Gold clears the 50-day SMA, the next stop would be the $2,700 figure. A breach of the latter will expose the psychological $2,750, and the all-time high at $2,790.
Conversely, If bears push prices below $2,600, it will open the door to testing the 100-day SMA of $2,572, immediately followed by the November 14 swing low of $2,536.
Oscillators like the Relative Strength Index (RSI) have shifted bearishly, indicating sellers are in charge.
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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