- Gold rose after Fed minutes signaled a possible slowdown in the rate cutting cycle.
- The U.S. dollar index continues to rise, while U.S. Treasury yields have retreated slightly from recent highs.
- Gold market watchers will be keeping an eye on the US non-farm payrolls report and consumer sentiment data.
North American trading comes after the US Federal Reserve struck a neutral to slightly hawkish tone in its December meeting minutes, suggesting that “a slower pace of easing would be appropriate.” Gold prices rose during the period. At the time of writing, XAU/USD is trading at $2,659, up 0.34%.
Officials decided to cut borrowing costs by 25 basis points at a December meeting. However, “some participants said there was merit in leaving interest rates unchanged at the meeting due to the high risk of sustained increases in inflation.” After the release of the minutes, XAU/USD dipped steadily toward $2,658, then pared back some of that gain.
The US Dollar Index (DXY), which measures the performance of the US dollar against a basket of six currencies, remained at 109.04, up 0.33%. The coupon on the US benchmark 10-year bond reached 4.699% from 4.73%, then rose 3 basis points (bp) before falling back.
Earlier, market participants were alarmed by a CNN article revealing that US President-elect Donald Trump may consider declaring a national economic emergency that would allow him to impose tariffs on hostile allies. I strengthened it.
Bullion buyers ignored mixed US employment figures as private sector payrolls were lower than expected. However, the US Department of Labor revealed that the number of Americans applying for unemployment benefits decreased compared to the previous week, which was lower than expected.
Federal Reserve President Christopher Waller said to the contrary that tariffs would not cause sustained inflation and would continue to lower inflation toward the Fed's 2% target. Waller supports further rate cuts, but added that it depends on the data.
Meanwhile, gold traders are keeping an eye on Friday's release of the U.S. non-farm employment report and University of Michigan (UoM) consumer sentiment. If both readings are stronger than expected, XAU/USD could edge lower on the back of broad USD strength.
Daily Digest Market Trends: Gold Prices Rise Against the Background of US High Yields, Ignoring US Statistics
- Gold ignored the rise in US real yields and rose 3bps to 2.31%.
- U.S. new jobless claims fell to 201,000 for the week ending Jan. 3, down from 211,000 and well below expectations of 218,000, according to the Labor Department.
- ADP reported that private sector employment totaled 122,000 people in December, lower than economists' expectations of 140,000.
- Market expectations suggest the Fed could cut rates twice in 2025, with the December federal funds futures contract pricing in 54 basis points of easing.
- Gold soared to a two-day high of $2,664 on news that the People's Bank of China increased its reserves for the second straight month, adding 300,000 ounces to reach 73.3 million ounces. The XAU/USD price may be tilted to the upside as the People's Bank of China (People's Bank of China) resumes bullion purchases.
XAU/USD Technical Outlook: Gold Price Soars Above $2,650
Gold prices remain strong, but have trended slightly higher after regaining the 50-day simple moving average (SMA) of $2,648. If the bulls push the price above $2,660, it will pave the way for a challenge to $2,700 before testing the December 12 high of $2,726, ahead of the all-time high of $2,790.
Conversely, if sellers push XAU/USD below the 100-day SMA of $2,628, they will look for a test of $2,500 before gold extends losses to the 200-day SMA of $2,498.
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.
