- Gold prices are attracting some sellers as a rebound in US Treasury yields helps revive US dollar demand.
- Trade war fears and geopolitical tensions could help limit losses for safe-haven XAU/USD.
- Aggressive traders should be cautious as trading volumes have thinned out due to the US holiday.
Gold prices (XAU/USD) fell during Thursday's Asian session, extending its retracement decline from the previous day's near $2,658. US macro data on Wednesday showed that the US economy remains resilient and the development of inflation has stalled. This suggests that the Federal Reserve may be cautious about further rate cuts, causing a modest rise in U.S. Treasury yields, which in turn revives demand for the U.S. dollar (USD) and lower yields. It is seen as damaging to metal.
But markets are still pricing in the possibility that the U.S. central bank will cut borrowing costs by 25 basis points in December. Additionally, the US president-elect's tariff threats could stoke fears of a renewed trade war between the world's largest economies, hurting global economic growth. This, combined with persistent geopolitical risks stemming from the protracted Russia-Ukraine war, has helped keep safe-haven gold prices above $2,600.
Gold prices fall on new rise in US Treasury yields and recovery in US dollar demand
- The U.S. Bureau of Economic Analysis (BEA) reported Wednesday that the personal consumption expenditure (PCE) price index rose at an annualized rate of 2.3% in October from 2.1% the previous month.
- Further details in the report reveal that the core PCE price index, which excludes volatile food and energy prices, rose 0.3% on a monthly basis, up slightly from 2.7% in September to 2.8% last month. It became.
- Separately, data released by the U.S. Department of Commerce showed the world's largest economy expanded at a healthy 2.8% annual rate in the third quarter on strong consumer spending (up 3.5%). did.
- Meanwhile, the Labor Department said the number of Americans who filed new claims for unemployment-related benefits in the week ending Nov. 23 fell by 2,000 to a seasonally adjusted 213,000.
- This helped offset some disappointment from October's 0.2% rise in US durable goods orders, compared to an expected 0.5% rise. Orders excluding transportation rose 0.1%, lower than expected.
- This comes on top of concerns that US President-elect Donald Trump's policies will push up inflation, as well as the FOMC's minutes indicating that the committee could suspend policy rate easing if inflation remains high. The content is as follows.
- Benchmark 10-year US Treasury yields rebounded from levels not seen in a month, helping reverse some of the US dollar's overnight slide to a two-week low and putting some pressure on gold prices. are.
- President Trump promised earlier this week to impose tariffs on a wide range of products imported into the United States from Mexico, Canada and China. Apart from this, geopolitical tensions have supported the safe haven precious metals and helped limit losses.
Gold price bears need to wait for a sustained break below $2,600 before making new bets
The failure to break above the 100-period exponential moving average (EMA) on the 4-hour chart overnight and the subsequent decline should be alarming for bullish traders. Additionally, negative oscillators on the hourly and daily charts suggest that the path of least resistance for gold prices is to the downside. Having said that, it is still wise to wait for a sustained break and a break below the $2,600 mark before bracing for further losses. XAU/USD could then challenge the 100-day SMA, currently pegged around $2,571-$2,570, and ultimately aim to drop to around the monthly swing lows of $2,537-$2,536.
On the other hand, any rally above the Asian trading peak, a zone around $2,638-$2,639, now appears to be facing a strong barrier near the overnight swing high of $2,658. Sustained strength above the latter could lift gold prices to the next relevant hurdle around the $2,677-$2,678 hurdle on the way to the $2,700 round number. Some follow-through buying could suggest that the recent correctional decline from October's all-time highs has run its course and the bias is shifting in favor of bullish traders.
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.
