Gold (XAU/USD) dips some 0.80% on Tuesday as traders seem to be booking profits ahead of next week’s Federal Reserve (Fed) monetary policy meeting, amid a firm US Dollar. At the time of writing, XAU/USD trades at $4,193, after hitting a daily high of $4,240.
XAU/USD falls as traders unwind positions before next week’s FOMC decision
An upbeat market mood weighed on Gold’s haven appeal, while the Greenback, according to the US Dollar Index (DXY), holds firm at 99.44, up 0.04%.
On Monday, the ISM Manufacturing Purchasers Managers Index (PMI) was weaker than expected in November, exerting pressure on the Fed to reduce borrowing costs. Bullion is also weakening due to hawkish comments by the Bank of Japan (BoJ) Governor Kazuo Ueda, who commented that the bank is evaluating whether to raise rates at the next policy meeting.
In the meantime, traders are waiting for the Fed’s December 9-10 meeting, with a divided committee. On the dovish side leans Fed Governors Christopher Waller, Stephen Miran, Michelle Bowman and New York Fed John Williams. On the hawkish front lie Boston Fed Susan Collins, Kansas City’s Jeffrey Schmid, St. Louis Alberto Musalem, Chicago’s Austan Goolsbee and Governor Michael Barr.
Meanwhile, with a neutral stance lie the Fed Chair Jerome Powell, the Vice-Chair Philip Jefferson and Governor Lisa Cook.
Ahead this week, Gold traders are eyeing the release of the ADP Employment Change report, and the release of the Fed’s favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, due on Friday.
Daily market movers: Gold treads water amid firm US Treasury yields
- US Treasury yields are firm, with the 10-year US Treasury note yield standing at 4.086%. US real yields, which correlate inversely to Gold prices, hold steady, virtually unchanged at 1.856%.
- Market participants are pricing an 87% probability of a 0.25% rate cut at the Federal Reserve’s meeting next week, up from 63% a month ago, according to the CME FedWatch Tool.
- The ISM Manufacturing PMI eased to 48.2 in November from 48.7 in October, marking the ninth straight month of contraction in the sector. The employment sub-index weakened further, falling from 46 to 44, while the Prices Paid component edged higher to 58.5 from 58, though it came in just below consensus expectations of 59.5.
- Regarding the Russia-Ukraine conflict, Russian President Vladimir Putin met with US envoy Steve Witkoff and President Trump’s son-in-law Jared Kushner.
- Ukraine’s Foreign Minister said that Putin’s statements demonstrate that he does not plan to end the war.
- Earlier, Russian President Vladimir Putin said that the city of Pokrovsk in Ukraine is under Russia’s army control. He added that Europe seeks demands that are not acceptable to Russia and added that if Europe wants to fight a war, they are ready now.
Technical analysis: Gold slips towards $4,200
Gold price reverses its course after reaching a six-week high of $4,264, falling beneath $4,200 as sellers eye a daily close below the latter. Momentum shifted bearishly in the short term as depicted by the Relative Strength Index (RSI), which aims lower toward its neutral level.
A daily close below $4,200 clears the path to test the November 25 low of $4,109, followed by the 20-day Simple Moving Average (SMA) at $4,089. On the other hand, if XAU/USD stands above $4,200, traders will eye the December 1 high of $4,264, ahead of $4,300, followed by the all-time high of $4,381.
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.