- Gold rose 1% on Friday and is on track to end the week up 0.20%.
- US PPI data is slightly better than expected, suggesting inflation is falling but stalling above target, while UoM consumer sentiment highlights concerns over rising costs of living I'm doing it.
- Despite rising U.S. Treasury yields, with the 10-year note rising to 4.081%, bullion prices remain supported by expectations that the Federal Reserve will cut interest rates later this year.
Gold rose more than 1% on Friday, with the yellow metal set to end the week with a modest 0.20% gain as inflation data released on Friday and Thursday's Consumer Price Index (CPI) report capped dollar gains. It was. As of this writing, XAU/USD is trading at $2,658.
Mixed economic indicators supported the price of the yellow metal. The U.S. Bureau of Labor Statistics (BLS) said prices paid by producers were closer to consensus, indicating that inflation is trending lower but faster than expected. At the same time, October consumer sentiment data from the University of Michigan (UoM) showed a deterioration among Americans due to rising costs of living.
While this data did not affect the strong US dollar, bullion prices rose slightly. This is despite the yield on U.S. government bonds, specifically the 10-year T-note, rising 1.5 basis points to 4.081%.
Chicago Fed President Austan Goolsby appeared on Bloomberg and praised progress in inflation and the labor market. He added that despite the strong September employment report, there were no signs of overheating.
“The PPI numbers are positive for bulls in precious metals and suggest the Fed is on track to cut interest rates by two quarter-point points this year,” said Jim Wyckoff, an analyst at Kitco. pointed out.
The U.S. economic schedule continues to be busy next week, with Fed officials' comments and the New York Fed's Empire State Manufacturing Index continuing to grab the headlines. Retail sales, new jobless claims and housing data could shape the Fed's monetary policy later this week.
A daily digest that moves the market: Gold prices rise despite high US yields and strong US dollar
- Gold prices have finally broken through the $2,650 barrier, but will need to achieve a daily close above that level to begin trading in the $2,650-$2,685 range.
- As a result, stocks rose, as seen by the US Dollar Index (DXY) rising 0.02% to 102.90.
- The U.S. producer price index (PPI) rose 1.8% year-on-year in September, higher than the 1.6% expected but lower than August's 1.9%. Core PPI rose 2.8% year-on-year, better than expected, up from 2.7% in September and 2.6% in August.
- Monthly PPI was flat at 0%, below expectations of 0.1% and below August's 0.2%. As expected, core PPI fell to 0.2% from 0.3% last month.
- The University of Michigan (UoM) Consumer Confidence Index worsened from 70.1 to 68.9, below expectations of 70.8. One-year inflation expectations were revised upward from 2.7% to 2.9%.
- A slight increase in the Consumer Price Index (CPI), combined with Friday's weak US jobs report, could lead to further interest rate cuts by the Federal Reserve.
- Investors expect the Fed to ease by 49 basis points toward the end of 2024, according to Chicago Commodity Exchange Commission data based on December federal funds rate futures contracts.
XAU/USD Technical Analysis: Gold price uptrend resumes, but remains below $2,650
Gold's uptrend has resumed, with the yellow metal posting consecutive bullish daily readings, suggesting buyers may challenge year-to-date highs in the short term. According to the Relative Strength Index (RSI), momentum is in favor of buyers, recording higher readings in bullish territory.
That said, the first resistance for XAU/USD would be at the October 4th high of $2,670. Above this, the next stop will be at $2,685, a year-to-date high above $2,700.
Conversely, if XAU/USD falls below $2,650, there could be a downside towards $2,600. A violation of the latter would expose the stock to a 50-day simple moving average (SMA) of $2,545.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
