Gold (XAU/USD) extends its gains for the second consecutive trading session on Monday, up over 0.40% as money markets priced in a rate cut by the Federal Reserve (Fed) in the next week. Meanwhile, the US Dollar weakness keeps the yellow metal underpinned at around $4,240 at the time of writing after reaching a five-week high of $4,264.
Bullion holds firm despite BoJ tightening risk, weaker Chinese physical demand
The yellow metal remains upward biased, but central bank tightening, particularly from the Bank of Japan (BoJ) following comments from Governor Kazuo Ueda, and a split Federal Open Market Committee (FOMC) are the main risks for bullion’s advance. Despite this, last week, Gold rallied over 3.75% and seems poised to challenge the $4,300 toward year’s end.
Data-wise, the Institute for Supply Management (ISM) revealed that manufacturing activity in November contracted for the ninth consecutive month. Further data, revealed by the ISM, showed that input prices are rising and that the labor market continues in a low-firing, low-hiring environment.
Meanwhile, physical demand for Gold in China has deterred buyers due to high prices, leading to hundreds of store closures, according to the Financial Times.
Ahead of this week, the US economic docket will feature the ADP Employment Change, the ISM Services PMI, Initial Jobless Claims and the Fed’s preferred inflation gauge release, the Core PCE.
Daily market movers: Expectations for dovish Fed, to underpin Gold prices
- The US Dollar Index (DXY), which tracks the buck’s performance versus six currencies, is down 0.16% at 99.31. At the same time, US Treasury yields are soaring, with the 10-year US Treasury note yield up seven basis points to 4.092%. US real yields, which correlate inversely to Gold prices, are surging by nearly seven and a half basis points to 1.862%.
- Expectations that the Federal Reserve would continue its easing cycle increased as the CME FedWatch Tool showed that odds for a 25-basis-point rate cut in December are at 87.4%, up from 86% last Friday.
- Rumors suggest that the White House National Economic Adviser Kevin Hassett could be appointed as the next Fed Chair succeeding Jerome Powell. Nevertheless, US President Donald Trump said on Sunday that he won’t tell anyone who will be but that he already made his pick. He added ,“We’ll be announcing it.”
- The ISM Manufacturing PMI softened to 48.2 in November from 48.7 in October, marking the ninth consecutive month in contraction territory. The employment sub-index fell deeper into contraction, sliding from 46 to 44, while the Prices Paid component rose to 58.5 from 58, slightly below expectations of 59.5.
- Traders should be aware that a possible solution to the Russia-Ukraine conflict led by the White House could cap bullion’s advance amid an obvious sentiment shift.
Technical analysis: Gold climbs steadily above $4,200
Gold price extended its advance after decisively clearing the $4,200 barrier, positioning XAU/USD to test the November 13 high at $4,245, followed by the $4,250 region. Momentum supports the bullish outlook, with the Relative Strength Index (RSI) trending higher and signaling scope for further upside.
The brief break above $4,250 opens the door for a move toward $4,300. Once above that level, the next resistance is the all-time high at $4,381. On the downside, a drop back below $4,200 would expose initial support at the November 25 low of $4,109, followed by the 20-day Simple Moving Average (SMA) at $4,089.
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.