Gold price retreats from over two-week top; bulls turn cautious ahead of US CPI
Gold price advances to over a two-week high and draws support from a combination of factors.
Geopolitical risks, trade war fears and rate cuts by major central banks underpin the XAU/USD.
Rising US bond yields underpin the USD and cap the yellow metal ahead of the US CPI report.
Gold price (XAU/USD) prolongs its weekly uptrend for the third consecutive day on Wednesday and climbs to a two-and-half-week high during the Asian session. The commodity now looks to extend the momentum beyond the $2,700 mark and remains well supported by a combination of factors. Geopolitical risks stemming from the worsening Russia-Ukraine war and tensions in the Middle East, along with concerns over US President-elect Donald Trump's tariff plans, continue to boost safe-haven demand. Adding to this, the expected interest rate cuts by major central banks offer additional support to the non-yielding yellow metal.
That said, the recent US Dollar (USD) move up to a near one-week top touched on Tuesday keeps a lid on any further gains for the USD-denominated Gold price. Furthermore, bulls opt to lighten their bets ahead of the release of the US consumer inflation figures later today, which might guide Fed policymakers on their decision next week. This, in turn, will influence the USD and provide a fresh impetus to the precious metal. The fundamental backdrop, meanwhile, suggests that the path of least resistance for the XAU/USD is to the upside.
Gold price continues to draw support from haven flows and bets for more rate cuts by major central banks
Israel launched airstrikes at military targets across Syria and deployed ground troops beyond a demilitarized buffer zone for the first time in 50 years following the collapse of President Bashar al-Assad's regime over the weekend.
Ukraine's President Volodymyr Zelenskyy issued orders to increase funding for equipping brigades with new drones and raised the idea of foreign troops being deployed in Ukraine until it could join the NATO military alliance.
US President-elect Donald Trump has pledged to impose big tariffs against America’s three largest trading partners – Mexico, Canada and China – and also threatened a 100% tariff on the so-called 'BRICS' nations.
The Bank of Canada is expected to cut rates later today, while the European Central Bank and the Swiss National Bank are likely to follow suit on Thursday, which should continue to support the non-yielding Gold price.
According to the CME Group's FedWatch Tool, the markets are currently pricing in over an 85% probability that the Federal Reserve will lower borrowing costs by 25 basis points at its December policy meeting.
However, the recent hawkish remarks from several influential FOMC members, including Fed Chair Jerome Powell, suggested that the US central bank might adopt a more cautious stance on cutting interest rates.
Expectations for a less dovish Fed assisted the US Treasury bond yields to finish higher for the second day on Tuesday and lifted the US Dollar to a four-day high, albeit did little to dent the bullish sentiment around the precious metal.
The market focus remains glued to the crucial US Consumer Price Index (CPI) report, which might offer cues about the interest rate outlook in the US and provide a fresh impetus to the non-yielding XAU/USD.
The headline US CPI is expected to increase by 0.3% in November and rise by 2.7% on a yearly basis. Meanwhile, the core gauge (excluding food and energy prices) is forecast to remain unchanged at the 3.3% YoY rate.
Gold price could accelerate the positive momentum once the $2,720-2,722 strong barrier is cleared decisively
From a technical perspective, this week's breakout through the $2,650-2,655 supply zone and the subsequent move up favors bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are still far from being in the overbought territory. This, in turn, validates the near-term positive outlook for the Gold price and supports prospects for the emergence of some dip-buying near the aforementioned resistance breakpoint. This should help limit the downside for the XAU/USD near the $2,630 area, below which the downward trajectory could extend further towards the $2,600 round figure.
On the flip side, a sustained move beyond the $2,700 round figure could extend further towards the $2,720-2,722 hurdle. This is followed by resistance near the $2,735 region, which if cleared will suggest that the recent corrective decline from the all-time high touched in October has run its course and shift the bias in favor of bullish traders. The momentum might then lift the Gold price to the $2,758-2,760 barrier en route to the $2,770-2,772 region and the $2,790 area, or the record peak.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
