- Gold prices traded with a negative bias in early European trading on Friday.
- A strong US dollar and expectations that the pace of Fed rate cuts will slow are putting selling pressure on gold prices.
- The October U.S. retail sales report is expected to be released later Friday.
Gold prices (XAU/USD) are struggling to rally around $2,570 on Friday after rebounding from two-month lows in the previous session. Precious metals remain under selling pressure due to a strong U.S. dollar (USD) and growing uncertainty over the pace of Federal Reserve rate cuts. Expectations of higher inflation next year due to President Donald Trump's policies are weighing on the yellow metal as expected interest rate cuts are reduced and higher rates make holding non-yielding assets such as gold less attractive.
However, rising tensions in the Middle East and the continuing conflict between Ukraine and Russia could push up the price of gold, a traditional safe-haven asset. Looking ahead, investors will focus on October's U.S. retail sales figures, which will be released later on Friday. The New York Empire State manufacturing index and industrial production data will also be released. Fed's Susan Collins and John Williams are scheduled to speak later in the day.
Gold prices fall slightly, US dollar strength may limit upside
- According to Bloomberg, Federal Reserve Chairman Jerome Powell said Thursday that the U.S. economy has performed “extremely well” recently and that the Fed has room to cut interest rates at a cautious pace.
- Richmond Fed President Thomas Barkin said Thursday that while the Fed has made strong progress so far, there is still work to do to maintain momentum.
- The U.S. Producer Price Index (PPI) rose 2.4% year over year in October, compared with a 1.9% increase (revised from 1.8%) recorded in September, the U.S. Bureau of Labor Statistics said Thursday. . This figure exceeded market expectations of 2.3%.
- Weekly new jobless claims in the U.S. for the week ending Nov. 9 rose to 217,000 from 221,000 the previous week, falling short of expectations of 223,000.
- Nearly 59.1% of markets expect the Fed to cut rates by 25 basis points at its December meeting, down from 75% last week, according to the CME FedWatch tool.
Gold price expected to resume downward trend
Gold prices rose slightly on this day. The positive outlook for the precious metal looks fragile on the daily time frame as prices remain hovering around the key 100-day exponential moving average (EMA). The yellow metal could resume its decline if it breaks below the 100-day EMA. Downward momentum cannot be ruled out as the 14-day Relative Strength Index (RSI) remains below the 50 midline at around 33.60.
A consistent trade below the 100-day EMA could pave the way to the September 8 low of $2,485. An additional downside filter of note is the July 25 low of $2,353. If losses widen, it could fall to the psychological mark of $2,300.
On the upside, XAU/USD's immediate resistance appears at the support-turned-resistance level around $2,665. A decisive break above this level could lead to a rally to the November 6th high of $2,750.
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.
