Gold edges lower as USD rebounds from over one-month low; downside seems limited
- Gold edges lower on Thursday amid a positive risk tone and a modest USD recovery.
- Rising December Fed rate cut bets should cap the USD and support the commodity.
- Geopolitical uncertainties should contribute to limiting losses for the XAU/USD pair.
Gold (XAU/USD) trades with a negative bias during the Asian session on Thursday, though it lacks bearish conviction and remains confined in the weekly range. The US Dollar (USD) attempts a modest recovery from its lowest level since late October, touched on Wednesday, and turns out to be a key factor acting as a headwind for the commodity. Apart from this, a generally positive tone around the equity markets is seen undermining the safe-haven precious metal.
Any meaningful USD appreciation, however, seems elusive amid bets that the US Federal Reserve (Fed) will lower borrowing costs again next week, which, in turn, could offer some support to the non-yielding Gold. This, along with persistent geopolitical uncertainties stemming from the protracted Russia-Ukraine war, limits the downside for the XAU/USD pair. Traders might also opt to wait for the crucial US inflation data on Friday before placing fresh directional bets.
Daily Digest Market Movers: Gold bulls remain on the sidelines despite dovish Fed expectations
- Automatic Data Processing reported on Wednesday that private payrolls unexpectedly fell by 32K in November, compared to the 47K increase (revised from 42K) in the previous month and below expectations of 5K job additions. This suggested that the slowdown in the US labor market intensified last month.
- Furthermore, the recent US macro data pointed to a gradual cooling of the economy, which, along with comments from several Federal Reserve officials, lifted bets for a 25-basis-point rate cut at the upcoming FOMC meeting next week. This continues to act as a tailwind for the non-yielding Gold on Thursday.
- Meanwhile, the prospects for lower US interest rates remain supportive of the underlying bullish sentiment around the equity markets. Apart from this, a modest US Dollar uptick turns out to be another factor that is seen acting as a headwind for the safe-haven commodity during the Asian session on Thursday.
- However, dovish Fed expectations might keep a lid on any meaningful USD recovery. Investors might also opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday for more cues about the Fed's rate-cut path and before placing directional bets around the XAU/USD pair.
- In the meantime, traders will take cues from Thursday's US economic docket – featuring Challenger Job Cuts and the usual Weekly Initial Jobless Claims – for some impetus later during the North American session. Apart from this, the broader risk sentiment could produce short-term trading opportunities.
- US special envoy Steve Witkoff will meet Ukraine's head of the National Security Council, Rustem Umerov, for talks on Thursday after failing to reach a compromise on a possible peace deal with Russian President Vladimir Putin. This keeps geopolitical risks in play and could further support the safe-haven commodity.
Gold could find support and attract buyers near $4,164-4,163 area, weekly swing low
The recent repeated failures to find acceptance above the $4,245-4,250 barrier and the subsequent slide favor the XAU/USD bears. However, mixed technical oscillators on hourly/daily charts suggest that any further slide is more likely to find decent support near the weekly swing low, around the $4,164-4,163 area, touched on Tuesday.
Some follow-through selling, however, could drag the Gold price to the $4,100 mark en route to the $4,085 confluence. The latter comprises the 200-period Exponential Moving Average (EMA) on the 4-hour chart and an ascending trend-line extending from late October, which should act as a strong near-term base.
On the flip side, the $4,245-4,250 zone might continue to act as an immediate strong barrier ahead of the $4,277-4,278 region, above which the Gold price could aim to reclaim the $4,300 round figure. A sustained strength beyond the latter will be seen as a key trigger for the XAU/USD bulls and pave the way for additional near-term gains.
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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