- Gold prices saw new action on Friday amid trade war concerns and geopolitical tensions.
- USD is languishing near two-week lows, providing further support for the XAU/USD pair.
- Betting on a gradual rate cut by the Fed could keep a lid on the low-yielding yellow metal.
Gold prices (XAU/USD) surged to a four-day high during Friday's Asian session near $2,662-$2,663 as geopolitical risks and trade war concerns continue to drive demand for safe-haven assets. . That, coupled with expectations that the Federal Reserve will lower borrowing costs again in December, and the recent drop in U.S. Treasury yields, are providing further support for the low-yielding yellow metal.
Meanwhile, the US dollar (USD) has languished near two-week lows amid expectations of further rate cuts by the Federal Reserve, another factor proving to be a boon for gold prices. That said, the U.S. personal consumption expenditure (PCE) price index points to a stagnation in inflation, suggesting the Fed may delay its rate-cutting cycle. This could be a tailwind for the USD and limit the rise in XAU/USD.
Gold prices continue to attract haven capital inflows amid concerns over President Trump's tariff plans and Russia-Ukraine war
- Russian President Vladimir Putin has responded to Western missile launches on Ukrainian territory, saying Russia could use new hypersonic missiles to attack the country's decision-making centres.
- US President-elect Donald Trump promised earlier this week to impose tariffs on all products imported into the US from Canada, Mexico and China, a move that could spark a trade war.
- Traders now believe there is a 70% chance the Federal Reserve will cut interest rates at its next policy meeting in December, with the dollar struggling to take advantage of Thursday's modest gains.
- Minutes of the November FOMC meeting released earlier this week revealed that members are divided on how much further interest rate cuts should be made.
- Wednesday's PCE data showed progress in lowering US inflation stalled in October. Investors also seem confident that President Trump's policies will push up inflation.
- This suggests the Fed may proceed with caution, increasing uncertainty about the outlook for interest rates in 2025 and limiting further declines in Treasury yields.
- The benchmark 10-year Treasury yield hit a two-week low on Wednesday on expectations that President Trump's nominee for Treasury secretary, Scott Bessent, will want to rein in the U.S. budget deficit.
- No market-moving economic data is scheduled to be released on Friday, and the U.S. stock market is scheduled to close early for the Thanksgiving holiday.
Intraday breakout momentum in gold price crosses $2,650 confluence and stalls around 50% retracement level
From a technical perspective, bulls are hopeful of an intraday breakout of the $2,649-$2,650 confluence hurdle, which consists of the 100-hour simple moving average (SMA) and the 38.2% Fibonacci retracement level of weekly decline. was considered an important trigger. However, the rally since then stalled around $2,663-$2,664, which coincides with the 50% retracement level and should be a key point. Follow-through buying could push gold prices to the $2,677 region, or the 61.8% Fibonacci level. Levels on the way to a round number of $2,700.
Conversely, the confluence resistance breakpoint at $2,650 appears to be protecting the near-term downside, below which gold prices can move towards the $2,633 area (23.6% Fibonacci level) and the overnight swing low at $2,620. There is a possibility of a fall in the near future. The next relevant support is anchored near the monthly trough, or around $2,605. Some of the follow-through selling below the $2,600 mark is on its way to monthly lows near $2,537-$2,536, with a path to even bigger losses towards the 100-day SMA, currently pegged near $2,573. will open.
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.
