- Gold prices are attracting some sellers amid a modest rebound in U.S. Treasury yields.
- Geopolitical risks and trade war concerns could help limit losses for XAU/USD.
- USD bulls remain on the sidelines ahead of Friday's important US NFP report.
Gold prices (XAU/USD) fell during Asian trading on Thursday, but remained confined to the familiar range it has held over the past week or so amid mixed fundamental indicators. Hawkish comments from FOMC members last night, including Federal Reserve Chairman Jerome Powell, reaffirmed expectations that the U.S. central bank will take a cautious approach to cutting interest rates. That helped push U.S. Treasury yields back slightly from their lowest levels in more than a month on a closing basis, proving to be the main factor hurting the low-yielding yellow metal.
Separately, the prevailing risk-on environment is likely to put some downward pressure on safe-haven gold prices. That said, persistent geopolitical tensions stemming from the worsening Russia-Ukraine conflict and concerns over US President-elect Donald Trump's tariff plans could provide a tailwind for XAU/USD. Additionally, the absence of meaningful US dollar (USD) purchases should help limit commodity losses. Traders may also choose to wait for Friday's release of the US Nonfarm Payrolls (NFP) report before betting on the direction.
Gold prices lack firm near-term direction as traders wait for further clues on the Fed's rate cut path
- The Federal Reserve's Beige Book said on Wednesday that U.S. economic activity has been at its lowest since early October, with inflation rising at a moderate pace and businesses expressing optimism about the future. It showed a slight expansion in the region.
- St. Louis Fed President Albert Moussallem said it may be appropriate to pause rate cuts at the same time as the December meeting because the risks of lowering borrowing costs too soon are greater than the risks of easing too little. said.
- Fed Chairman Jerome Powell said the U.S. economy is in very good shape, certainly stronger than expected, and acknowledged that the central bank could take a more cautious approach by lowering interest rates toward neutrality.
- Separately, San Francisco Fed President Mary Daly said there was no urgency to lower interest rates and that more work was needed to reach the 2% inflation target and sustained economic growth.
- Additionally, speculation that President-elect Donald Trump's policies will reignite inflation suggests the Fed could halt rate cuts or even raise rates again, triggering a modest rebound in Treasury yields. are.
- Benchmark 10-year U.S. Treasury yields have rebounded after hitting their lowest close since Oct. 21, which appears to be putting some downward pressure on non-yielding gold prices on Thursday. .
- Meanwhile, the US dollar has struggled to gain meaningful traction so far, and for XAU/USD amid concerns that President Trump's trade tariffs could trigger a second wave of the global trade war. This could be a tailwind.
- Traders are now looking forward to the annual US weekly new jobless claims report later on Thursday in hopes of providing some stimulus. But all eyes are still riveted on Friday's U.S. Nonfarm Payrolls (NFP) report.
Gold price technical setup favors bearish traders and supports prospects for larger losses
From a technical perspective, a breakdown below the ascending channel of a few days ago this week was seen as an important trigger for bearish traders. That said, the oscillator on the daily/4-hour chart is neutral, so it would be wise to wait for a follow-through sell below the support of the recent trading range around $2,630 before bracing for further losses. A subsequent decline could push gold prices below the weekly swing lows around $2,622-$2,621 and towards the $2,600 level. The downward trajectory could widen further towards the 100-day simple moving average (SMA), currently anchored near $2,581, and towards November's monthly lows of $2,537-$2,536.
Conversely, the $2,655 area may continue to act as an immediate barrier ahead of last Friday's swing high near the $2,666 area. There is some follow-through buying, leading to a subsequent rally above the $2,677-$2,678 hurdle, and gold prices should be able to aim for a recovery of the $2,700 round number. However, any further rally is likely to face stiff resistance near the $2,721-$2,722 supply zone, which, if cleared decisively, will shift the bias in favor of the bulls and provide a path to some meaningful upside in the near term. There is a possibility that it will be opened.
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 could 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 typically 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.
