- Gold rose 0.67% in late trade, but remains above $2,600 despite a monthly decline due to geopolitical tensions.
- The escalating conflict between Russia and Ukraine and tensions in the Middle East highlight the appeal of gold as a safe haven.
- Markets are increasingly optimistic that the Fed will cut rates by 25 basis points in December, strengthening Bullion's near-term outlook.
Gold prices rose 0.67% in late North American trading on Friday, but are still on track for a monthly loss of more than 3%. Geopolitical risks continue to drive price volatility, with non-yielding metals hovering around $2,600. XAU/USD is trading at $2,652 after hitting a low of $2,634.
Geopolitical tensions have eased in the Middle East after Israel and Lebanon agreed to a ceasefire. Nevertheless, both countries accused each other of violating the agreement.
Recently, Sky News Arabia revealed that the Israeli military announced that it had carried out an airstrike on Hezbollah's mobile rocket platform in southern Lebanon.
Gold prices may continue to bid after the escalation of the conflict between Russia and Ukraine. This week, Russia attacked Ukraine's energy infrastructure and threatened to attack it with ballistic missiles. Russia's response is in retaliation for the US and UK approval for the deployment of missiles manufactured by both countries in Russia.
Bullion prices in November were hampered by the victory of US President-elect Donald Trump on November 5th. Some of his proposals, such as imposing tariffs or cutting taxes, are likely to lead to inflation.
This will push the dollar higher, with the dollar on track to rise by more than 2% by the end of November, according to the US Dollar Index (DXY). Speculation that the new US administration's fiscal policy will be expansionary could prevent the Federal Reserve from continuing to cut interest rates.
The election of Scott Bessent as the incoming Trump administration's Treasury Secretary caused markets to calm down and gold prices to rise last week. Investors see Mr. Bessent as a market-friendly figure who could soften Mr. Trump's harsh trade policies.
This has left market participants optimistic that the Fed will cut interest rates by 25 basis points at its December meeting. According to the CME FedWatch Tool, the swap market sees a 66% chance of such a decision.
Daily Digest Market Trends: Lower US Real Yields Support Gold Prices
- Gold prices rebounded as US real yields fell by 7 basis points to 1.92%.
- The yield on the 10-year US Treasury note fell 6 basis points to 4.182%.
- The dollar index (DXY) against six currencies fell 0.37% on the day to 105.75. However, it is expected to rise more than 1.79% for the month.
- The latest US GDP statistics and core personal consumption expenditure (PCE) price index suggest that the US economy remains strong and that accommodative policies may need to be paused.
- However, Fed officials appear convinced that further easing is needed and could cut rates at their December meeting. However, they adopted a more cautious stance and opened the door to pausing the relaxation cycle.
- Investors expect the Fed to ease by 24 basis points by the end of 2024, according to data released by the Chicago Commodity Exchange Commission through the December Federal Funds Rate Futures contract.
Technical outlook: Gold prices rise but remain below 50-day SMA
Although gold prices remain upwardly biased, they remain within their 50-day and 100-day simple moving averages (SMAs) at $2,668 and $2,572, respectively. Buyers need to clear the 50-day SMA to be able to test $2,700. If stronger, the next resistance for XAU/USD will be the psychological $2,750 and all-time high $2,790.
On the other hand, if sellers pull the non-yielding metal below $2,600, they could target the 100-day SMA ahead of the November 14 swing low of $2,536.
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.
