- Gold prices are attracting some haven funds as the risk of a U.S. government shutdown looms.
- The global safe-haven driven fall in US bond yields is further benefiting XAU/USD.
- The Fed's hawkish stance will be a tailwind for the US dollar, limiting further upside.
Gold prices (XAU/USD) rose to the $2,600 level during Friday's Asian session, attracting some bullish buying following good two-way price action the previous day. The threat of a partial U.S. government shutdown ahead of Friday night's deadline weighs on precious metals amid persistent geopolitical risks, trade war concerns and a hawkish Federal Reserve. Some of the escape funds are flowing in.
The flight to safety led to a modest decline in US Treasury yields, which capped the recent rally in the US dollar (USD) to a two-year high and proved to be another factor supporting commodities. That said, the Federal Reserve's hawkish signal to slow the pace of interest rate cuts in 2025 should provide a tailwind for U.S. bond yields and the U.S. dollar, resulting in lower yielding yellow metals. will be the upper limit of
Gold prices are receiving support from capital flows from havens. Amid the Fed's hawkish streak, bulls don't seem to be as aggressive.
- The U.S. House of Representatives failed on Thursday to pass a spending bill to fund the government, raising the risk of a government shutdown at the end of Friday.
- This, along with persistent geopolitical risks and concerns about US President-elect Donald Trump's tariff plans, has prompted some havens to drive capital into gold prices.
- U.S. Treasury yields have retreated from multi-month highs, capping the dollar's post-FOMC rally to a two-year high and providing further support for commodities.
- The U.S. Bureau of Economic Analysis reported Thursday that the economy expanded at an annualized rate of 3.1% in the third quarter (previously expected was 2.8%).
- Other data on Thursday showed the number of Americans filing new claims for unemployment benefits fell more than expected, to 220,000 for the week ending Dec. 14.
- This reaffirms the Fed's hawkish outlook for rate cuts to slow in 2025, which should provide a tailwind for Treasury yields and provide a ceiling for the low-yielding yellow metal.
- Bulls may also refrain from making aggressive bets ahead of Friday's release of the U.S. Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred measure of inflation.
Technical settings in gold prices support the prospect of the emergence of new sellers at higher levels
From a technical perspective, the post-FOMC weakness below the 100-day simple moving average (SMA) was seen as another trigger for bearish traders. Additionally, the oscillator on the daily chart has gained negative traction, suggesting that the path of least resistance for gold prices is to the upside. Therefore, any subsequent rally may continue to face immediate resistance near the overnight swing high of $2,626. However, follow-through buying could trigger a rise in short covering and push XAU/USD to the next relevant hurdle near the $2,652-$2,655 supply zone. Sustained strength beyond the latter could cancel out the negative bias and pave the way for further gains.
Conversely, Thursday's monthly low near $2,583 could protect the near-term downside, with gold prices below this heading towards the $2,537-$2,536 zone or the $2,560 swing low. It is possible that the area will fall. The downside trajectory could extend further towards the psychological mark of $2,500 before XAU/USD ultimately falls to the all-important 200-day SMA support currently anchored around $2,472.
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.
