Gold price bulls opt to take some profits off the table amid rising US bond yields
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Gold price witnesses an intraday turnaround from over a one-month top touched on Thursday.
Bet for a less dovish Fed and rising US bond yields undermine the non-yielding yellow metal.
Geopolitical risks, trade war fears and December Fed rate cut bets could support the XAU/USD.
Gold price (XAU/USD) retreats sharply after touching over a one-month high, around the $2,726 area during the Asian session on Thursday and for now, seems to have snapped a three-day winning streak. Investors now seem convinced that the Federal Reserve (Fed) will adopt a cautious stance on cutting interest rates amid signs that the progress in lowering inflation toward its 2% target has virtually stalled. Expectations for a less dovish Fed continue to push the US Treasury bond yields higher, which, in turn, acts as a tailwind for the US Dollar (USD) and drives flows away from the non-yielding yellow metal.
Apart from this, a generally positive risk tone undermines demand for safe-haven assets and drags the Gold price to the $2,700 mark in the last hour. Meanwhile, the markets now seem to have fully priced in a third consecutive interest rate cut by the Fed next week. Apart from this, persistent geopolitical risks stemming from the Russia-Ukraine war and conflicts in the Middle East, along with concerns about US President-elect Donald Trump's impending trade tariffs, could limit losses for the XAU/USD. This, in turn, warrants caution before confirming that the commodity's recent breakout momentum has run out of steam.
Gold price is weighed down by expectations that the Fed could pause its rate-cutting cycle
The release of the mostly in-line US consumer inflation figures on Wednesday reinforced market expectations that the Federal Reserve will lower borrowing costs again at its upcoming policy meeting next week.
The US Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index rose 0.3% in November, marking the largest gain since April, and the yearly rate edged up to 2.7% from 2.6% in October.
Additional details revealed that the core gauge, which excludes volatile food and energy prices, increased 0.3% during the reported month and was up 3.3% as compared to the same time period last year.
According to the CME Group's FedWatch Tool, the likelihood of another 25-basis points rate cut by the Fed on December 18 shot to more than 98%, pushing the Gold price to over a one-month high on Thursday.
The lifts the yield on the benchmark climbs to a two-week high amid expectation that US President-elect Donald Trump's policies will boost inflationary pressures and force the Fed to pause its rate-cutting cycle.
This, in turn, assists the US Dollar to preserve its recent strong gains to a fresh monthly top, which, along with the prevalent risk-on environment, prompts some profit-taking around the non-yielding yellow metal.
Meanwhile, geopolitical risk premium remains in play amid the worsening Russia-Ukraine war and the ongoing conflicts in the Middle East. Moreover, trade war fears should help limit losses for the XAU/USD.
Traders now look to Thursday's US economic docket – featuring the release of the US Producer Price Index and the usual Weekly Initial Jobless Claims data – for some impetus later during the North American session.
The focus, however, will remain glued to the highly anticipated FOMC monetary policy meeting next week, which will play a key role in determining the next leg of a directional move for the non-yielding commodity.
Gold price bulls have the upper hand while above the overnight low, around $2,675 area
From a technical perspective, the Relative Strength Index (RSI) on hourly charts has eased from slightly overbought conditions. Furthermore, oscillators on the daily chart have just started gaining positive traction, which, in turn, supports prospects for the emergence of some dip-buying around the Gold price. Hence, any further weakness below the $2,700 mark might continue to find some support near the overnight swing low, around the $2,675-2,674 area. Some follow-through selling, however, could pave the way for further losses towards the $2,658-2,656 confluence – comprising 50- and 200-period Simple Moving Averages (SMAs) on the 4-hour chart.
On the flip side, the Asian session high, around the $2,726 area, now seems to act as an immediate hurdle, above which the Gold price could aim to surpass the $2,735 barrier and test the $2,748-2,750 supply zone. A sustained strength beyond the latter will set the stage for a move towards challenging the all-time peak, around the $2,800 neighborhood touched in October, with some intermediate resistance near the $2,775 region.
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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