Gold prices saw a substantial increase of 1.50% on Friday, driven by a dip in US 10-year Treasury yields, which settled at 4.40%. Heightened geopolitical tensions, including the potential widening of the Russia-Ukraine conflict, have amplified interest in gold as a safe haven. Meanwhile, the US economic landscape fed mixed signals: services and composite PMIs performed well, but the manufacturing sector remains in contraction territory.
During the North American trading session on Friday, gold prices climbed to a two-week peak, as yields on US Treasury bonds edged lower. Geopolitical concerns kept the demand for the precious metal high, though gains were somewhat held back by an uptick in US economic activity. Gold is currently trading at $2,710, marking a 1.50% increase.
What propelled the yellow metal upwards was a small descent in US Treasury yields. Specifically, the 10-year note dropped two basis points to 4.40%, giving a lift to bullion prices, which are on track to gain over 5% this week.
Concerns that the Russia-Ukraine situation might escalate into a more extensive conflict involving the US continue to buoy gold prices. Coupled with unrest in the Middle East involving Israel and Lebanon, there’s speculation that gold could retest its all-time high of $2,790.
The latest data from the US included the S&P Global Flash PMIs for November. Both the Services and Composite indices outperformed expectations and topped October figures. However, the Manufacturing PMI, despite beating forecasts and the previous month’s numbers, still lingers below the 50 mark, indicating contraction.
The University of Michigan recently reported an improvement in American consumer sentiment compared to earlier readings. Meanwhile, inflation expectations suggest a return towards the Federal Reserve’s 2% target over the next year.
On another note, some Federal Reserve officials voiced mild worries about inflation stagnating. While most support easing monetary policies, they recognize the economy’s resilience and acknowledge a pause in easing if inflation stays above the 2% target.
Market players have slightly reduced their expectations for a 25 basis-point rate cut in December. The CME FedWatch Tool indicates a 56% chance of a cut, down from 58% just two days prior.
Looking ahead, key data releases, including the Federal Reserve’s meeting minutes, October’s Durable Goods Orders, and the Core Personal Consumption Expenditures (PCE) Price Index, are scheduled for next week. These will play a crucial role in shaping market expectations.
In daily market movements, gold prices experienced a recovery as US real yields fell by two basis points to 2.068%. Meanwhile, the US Dollar Index (DXY), which measures the greenback’s strength against six major currencies, rose by over 0.34%, nearing weekly highs at 107.00. In November, US S&P Global PMIs indicated growth, with Services PMI climbing to 57.0 and Composite PMI reaching 55.3, both surpassing previous numbers. The Manufacturing PMI slightly increased from 48.5 to 48.8, aligning with projections. The University of Michigan’s Consumer Sentiment Index moved from 70.5 to 71.8 in November, though it fell short of expectations. Notably, one-year inflation expectations dropped from 2.7% to 2.6% as anticipated. According to Chicago Board of Trade data, via the December fed funds futures contract, investors expect a 22 basis-point rate cut by the Federal Reserve by late 2024.
In terms of technical outlook, gold buyers are setting their sights around the $2,800 mark. The yellow metal breached the 50-day Simple Moving Average (SMA) of $2,663 on Thursday, igniting buyer enthusiasm and pushing XAU/USD spot prices upward. Should bullion prices surpass $2,750, they might aim for the all-time high of $2,790. Breaking this level could pave the way to test the $3,000 mark, a significant resistance projected by Goldman Sachs. However, if XAU/USD falls below $2,700, we could see gold trading within the $2,650-$2,700 range, unless it dips further below the November 14 low of $2,536, followed by $2,500. The Relative Strength Index (RSI) now leans bullish, indicating that buyers are gaining control.
The module on the Federal Reserve provides insightful information on the Fed’s role in shaping monetary policy in the US. This policy primarily involves interest rate adjustments to either curb inflation or stimulate employment. Periodically, the Fed engages in Quantitative Easing (QE) or its reverse process, Quantitative Tightening (QT), to manage economic conditions, influencing the value of the US Dollar.
