Gold price (XAU/USD) trades 2% higher to near $4,080 during the European trading session on Monday. The yellow metal strengthens amid steady expectations that the Federal Reserve (Fed) will cut interest rates again in the December policy meeting.
According to the CME FedWatch tool, there is a 64.6% chance that the Fed will cut interest rates by 25 basis points (bps) to 3.50%-3.75%. This will be the third interest rate cut by the Fed in a row.
Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.
Meanwhile, a marginal selling pressure in the US Dollar (USD) is also supporting the Gold price. Technically, a lower USD Dollar makes the Gold price an attractive bet for investors. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades subduedly near 99.55.
The US Dollar is slightly under pressure as the market sentiment turns favorable for risky assets, following the approval of the stopgap funding bill by the United States (US) Senate to reopen federal agencies.
Gold technical analysis
Gold price attracts bids after correcting to near the 20-day Exponential Moving Average (EMA), which trades around $3,981.00. The 14-day Relative Strength Index (RSI) trades inside the 40.00-60.00 range, suggesting that the broader trend is sideways.
Looking down, the October 28 high near $3,888.62 will act as key support for the Gold price. On the upside, the all-time high near $4,380 will be the major resistance.
Gold daily chart
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.