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Gold price attracts fresh buyers and reverses a part of the overnight sharp fall from the record peak.
Fed rate cut bets drag the US bond yields lower, which weighs on the USD and lends some support.
The risk-off impulse further benefits the safe-haven metal ahead of this week’s key US macro data.
Gold price (XAU/USD) witnessed a dramatic intraday turnaround on Monday and retreated nearly $125 after the initial rally to a fresh all-time high, around the $2,144-2,145 region. The sharp pullback, however, stalled near the $2,020 area in the wake of growing acceptance that interest rates in the United States (US) have peaked. Moreover, the markets have been pricing in an eventual dovish pivot by the Federal Reserve (Fed) and a greater chance of a rate cut by March 2024.
Dovish Fed expectations, meanwhile, trigger a fresh leg down in the US Treasury bond yields and fail to assist the US Dollar (USD) to capitalize on the previous day’s strong move up to over a one-week high. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding Gold price. Apart from this, escalating geopolitical tensions in the Middle East and China’s woes lift the safe-haven precious metal back to the $2,035 area during the Asian session on Tuesday.
It, however, remains to be seen if the Gold price can capitalize on the modest intraday uptick as traders might prefer to wait on the sidelines and refrain from placing fresh directional bets ahead of this week’s key US macro releases. The US ISM Services PMI and JOLTS Job Openings data are due for release later this Tuesday. This will be followed by the ADP report on private-sector employment ahead of the closely-watched Nonfarm Payroll (NFP) on Friday.
A combination of supporting factors assists the Gold price to regain some positive traction on Tuesday and stall the overnight sharp retracement slide from the $2.144-2,145 area, or the record peak.
Geopolitical risks and concerns over a new epidemic in China overshadow the upbeat private survey from China, showing that business activity in the services sector grew at a faster pace in November.
China’s Caixin Services PMI accelerated from 50.4 in October to 51.5 during the reported month, beating market expectations for a reading of 50.8, though it remains well below pre-COVID levels.
Despite Federal Reserve Chair Jerome Powell’s hawkish remarks on Friday, markets seem convinced that the US central bank is done raising rates and may start easing by the first half of the next year.
The CME group’s FedWatch Tool indicates a nearly 60% chance for an interest rate cut by the Fed in March 2024, which drags the US bond yields lower and acts as a headwind for the US Dollar.
Furthermore, concerns about a darkening global economic outlook temper investors’ appetite for riskier assets and drive some flows toward the perceived traditional safe-haven precious metal.
Traders now look forward to the US ISM Services PMI, which is expected to tick higher to 52 for November from 51.8 in the previous month, for some short-term opportunities.
The focus, however, will remain on the release of the US monthly employment details, popularly known as the NFP report on Friday, which will shed more light on the labor market conditions.
From a technical perspective, the overnight breakdown below the 50% Fibonacci retracement level of the recent rally witnessed over the past three weeks or so warrants caution for bullish traders. That said, oscillators on the daily chart have eased from the overbought conditions and are still holding comfortably in the positive territory. Apart from this, the occurrence of a golden cross, with the 50-day Simple Moving Average (SMA) rising above the 200-day SMA, suggests that the path of least resistance for the Gold price is to the upside.
Meanwhile, any subsequent move up is likely to confront some resistance near the $2,045-2,046 area, above which the XAU/USD could accelerate the momentum and climb to the next relevant hurdle around the $2,070 region. Some follow-through buying should allow bulls to reclaim the $2,100 round figure. On the flip side, the $2,026-2,020 area now seems to protect the immediate downside ahead of the 61.8% Fibo. level, around the $2,012 zone and the $2,000 psychological mark. A convincing break below the latter will suggest that the Gold price has topped out in the near term and pave the way for some meaningful depreciating move.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Euro.
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF
USD
0.42%
0.58%
0.50%
1.49%
0.49%
1.02%
0.52%
EUR
-0.44%
0.17%
0.08%
1.09%
0.05%
0.62%
0.11%
GBP
-0.61%
-0.16%
-0.08%
0.92%
-0.09%
0.45%
-0.05%
CAD
-0.50%
-0.08%
0.09%
1.01%
-0.02%
0.54%
0.03%
AUD
-1.51%
-1.09%
-0.92%
-1.01%
-1.04%
-0.47%
-0.98%
JPY
-0.53%
-0.04%
0.28%
0.03%
1.02%
0.59%
0.04%
NZD
-1.03%
-0.61%
-0.45%
-0.54%
0.47%
-0.55%
-0.51%
CHF
-0.55%
-0.10%
0.06%
-0.03%
0.97%
-0.04%
0.50%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Gold FAQs
Why do people invest in Gold?
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.
Who buys the most Gold?
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.
How is Gold correlated with other assets?
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.
What does the price of Gold depend on?
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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