- Gold extended its gains to $2,650, shrugging off dollar strength as demand for safe-haven assets increases.
- The escalating conflict between Russia and Ukraine and President Vladimir Putin's nuclear threat are contributing to the sharp rise in gold prices.
- Comments from Fed governors provide a range of insights into the potential direction of US monetary policy in December.
Gold prices rose for the third straight day, ignoring the rising US dollar, as risk aversion led to an increase in safe-haven assets. The golden metal is up over 3.40% this week, with buyers eyeing the $2,700 level. XAU/USD is trading 0.69% higher at $2,650.
The bullion's fall to a two-month low of $2,536 is believed to be largely due to investors taking profits following President Donald Trump's victory in the US election. U.S. Treasury yields soared on concerns that some of his proposals could cause inflation to accelerate again, supporting the dollar.
Nevertheless, bullion prices have increased due to the escalation of the conflict between Russia and Ukraine.
On Tuesday, Russian President Vladimir Putin authorized the use of nuclear weapons in retaliation against the West. Officials said reports indicated that the White House had approved Ukraine's use of American weapons in Russia.
Meanwhile, the US currency gained 0.51% on the day, according to the US Dollar Index (DXY), which tracks the US dollar's performance against six other peers. DXY is at 106.69 after falling to a five-day low of 106.11.
Recently, Fed Directors Lisa Cook and Michelle Bowman failed to reveal the outcome of the December Federal Open Market Committee (FOMC) policy meeting.
Mr. Cook remains confident the Fed will bring inflation down toward its 2% goal, but declined to say whether he supports cutting rates next month. Bowman added that while there has been “substantial progress” on inflation, inflation appears to have “stalled in recent months” and the Fed should be cautious. He commented that the neutral interest rate will not be as low as some FOMC officials expected.
Traders reduced the chances of a rate cut by 25 basis points (bps) at the December meeting. The probability of a rate cut is 55%, down from 58% a day earlier, according to the CME Fedwatch tool.
Ahead of this week, the U.S. economic schedule will include new jobless claims, S&P Global PMI, and the University of Michigan's (UoM) final consumer confidence figures for November.
Daily Digest Market Trends: Gold Prices and USD Rise
- Gold prices recovered even as US real yields rose 1 basis point to 2.07%.
- U.S. Treasury yields are rising, with the 10-year benchmark interest rate rising 1 basis point to 4.41%.
- On Thursday, the number of new U.S. jobless claims for the week ending Nov. 16 is expected to rise from 217,000 to 220,000.
- U.S. existing home sales are expected to increase from 3.854 million to 3.93 million.
- Investors are pricing in a 22 basis point rate cut by the Federal Reserve by the end of 2024, according to data released by the Chicago Commodity Exchange Commission through the December Federal Funds Futures contract.
- On Monday, US President Joe Biden authorized Ukraine to use long-range missiles inside Russia, CNN revealed. The decision was made in response to thousands of North Korean troops being sent to support Moscow's war effort.
- President Donald Trump's tariff hikes and tax cuts could spur inflation and delay the Fed's easing cycle.
Technical outlook: Gold buyers challenge 50-day SMA
Gold prices are trending higher, but buyers need to clear major resistance levels going forward. If XAU/USD clears the 50-day simple moving average (SMA) of $2,658, it could find acceptance near $2,700. A break from the latter would expose the November 7 high of $2,710 and the psychological figure of $2,750.
Conversely, if non-yielding metals fall below $2,600, sellers will have an advantage. Further downside is seen, with the next support at the 100-day simple moving average (SMA) at $2,550. The bears are targeting the November 14 low of $2,536 after which XAU/USD could plummet to $2,500.
The Relative Strength Index (RSI) remains bearish but is approaching the neutral line, indicating that gold buyers are gathering short-term momentum.
US Dollar Frequently Asked Questions
The United States Dollar (USD) is the official currency of the United States and the “de facto” currency of many other countries, circulating alongside local paper currency. It is the world's most frequently traded currency, accounting for more than 88% of the world's foreign currency trading volume, with an average daily trading value of $6.6 trillion. data After World War II, the US dollar replaced the British pound as the world's reserve currency. For most of its history, the U.S. dollar was backed by gold until the 1971 Bretton Woods agreement abolished the gold standard.
The most important single factor influencing the value of the US dollar is the monetary policy formed by the Federal Reserve System (Fed). The Fed has two responsibilities: achieving price stability (controlling inflation) and promoting full employment. The main tool to achieve these two goals is to adjust interest rates. If prices rise too fast and inflation exceeds the Fed's 2% target, the Fed will raise interest rates to support the value of the U.S. dollar. If inflation falls below 2% or unemployment is too high, the Fed could cut interest rates, which would weigh on the dollar.
In extreme circumstances, the Federal Reserve could also print more dollars and implement quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit in a stymied financial system. This is a non-standard policy tool used when credit is exhausted because banks do not lend to each other (for fear of default by the other party). It is a last resort when simply lowering your interest rate does not seem to produce the desired results. This was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy U.S. Treasury bonds, primarily from financial institutions. QE usually leads to a weaker US dollar.
Quantitative tightening (QT) is the opposite process in which the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing bonds in new purchases. Usually positive for the US dollar.
