- Gold extends rally to $2,650, shrugging off a rising US Dollar amid demand for safe-haven assets.
- Escalation in Russia-Ukraine conflict and nuclear threats from Putin contribute to the surge in Gold.
- Fed Governors’ comments provide mixed insights on the potential direction of US monetary policy in December.
Gold price climbs extending its gains for the third straight day, shrugs off a buoyant US Dollar as risk aversion boosts safe-haven assets. The golden metal has risen over 3.40% during the week, with buyers eyeing the $2,700 mark. The XAU/USD trades at $2,650, up 0.69%.
Bullion’s decline toward a two-month low of $2,536 can mainly be attributed to investors booking profits after President Donald Trump’s victory in the US elections. Fears that some of his proposals could spark a reacceleration of inflation sent US Treasury yields soaring and underpinned the Greenback.
Nevertheless, Bullion prices had risen due to the escalation of the Russia-Ukraine conflict.
On Tuesday, Russian President Vladimir Putin authorized the use of nuclear weapons in retaliation to the West. Reports revealed the White House authorized Ukraine’s use of American weapons inside Russia, according to officials.
In the meantime, the American currency advances 0.51% in the day, according to the US Dollar Index (DXY), which tracks the buck’s performance against six other peers. The DXY is at 106.69 after sinking to a five-day low of 106.11.
Recently, Fed Board Governors Lisa Cook and Michelle Bowman failed to clarify the outcome of the December Federal Open Market Committee (FOMC) policy meeting.
Cook remains confident the Fed will lower inflation toward the 2% goal, but she didn’t reveal whether she will support a rate cut next month. Bowman added that despite seeing “considerable progress” on inflation, it seems to have “stalled in recent months,” meaning the Fed should be cautious. She commented that neutral rates could not be as low as expected, by some officials at the FOMC.
Traders trimmed the chances for a 25 basis points rate cut at the December meeting. The CME FedWatch Tool sees a 55% probability of lowering rates, down from a 58% chance a day ago.
Ahead of this week, the US economic schedule will feature Initial Jobless Claims, S&P Global Flash PMIs, and the University of Michigan (UoM) final reading of Consumer Sentiment for November.
Daily digest market movers: Gold price and the Greenback advance
- Gold prices recovered even though US real yields climbed one basis point to 2.07%.
- US Treasury bond yields are rising, with the 10-year benchmark rate up one basis points to 4.41%.
- On Thursday, US Initial Jobless Claims are expected to rise from 217K to 220K for the week ending November 16.
- US Existing Home Sales are projected to rise from 3.854 million to 3.93 million.
- According to data from the Chicago Board of Trade via the December fed funds futures contract, investors are pricing in 22 basis points of Federal Reserve rate cuts by the end of 2024.
- On Monday, US President Joe Biden authorized Ukraine’s use of long-range missiles inside Russia, CNN revealed. The decision comes as a reaction to thousands of North Korean troops being deployed in support of Moscow’s war effort.
- Donald Trump’s policies of higher tariffs and lower taxes are potential drivers of inflation and might slow the Fed’s easing cycle.
Technical outlook: Gold buyers to challenge the 50-day SMA
Gold price is upward biased, yet buyers must clear key resistance levels ahead. If XAU/USD clears the 50-day Simple Moving Average (SMA) at $2,658, it could find acceptance at around $2,700. A breach of the latter will expose the November 7 high of $2,710 and the psychological $2,750 figure.
Conversely, sellers will have the upper hand if the non-yielding metal drops below $2,600. Further downside is seen, with the following support being the 100-day Simple Moving Average (SMA) at $2,550. Bears could target the November 14 swing low of $2,536, followed by XAU/USD diving to $2,500.
The Relative Strength Index (RSI) remains bearish, but it is closing into the neutral line, indicating that Gold buyers are gathering short-term momentum.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Source: https://www.fxstreet.com/news/gold-price-surge-on-risk-aversion-and-overcome-strong-usd-202411202055