- Gold price met with a fresh supply and eroded a part of the overnight recovery gains.
- The Trump trade optimism revives the USD demand and weighs on the precious metal.
- Retreating US bond yields and bets for additional Fed rate cuts could help limit losses.
Gold price (XAU/USD) slides back below the $2,700 mark during the Asian session on Friday, eroding a part of the previous day’s goodish recovery move from the 50-day Simple Moving Average (SMA) support, or over a three-week low. The US Dollar (USD) attracts some dip-buying amid hopes that Trump’s policies would spur economic growth and inflation and for now, seems to have stalled its retracement slide from a four-month peak. This, along with a generally positive risk tone, undermines the safe-haven precious metal.
Meanwhile, the unwinding of the so-called Trump trade and the lack of hawkish signals from the Federal Reserve (Fed) led to a further decline in the US Treasury bond yields. This, in turn, might hold back the USD bulls from placing aggressive bets and act as a tailwind for the non-yielding Gold price. Traders now look forward to the release of the Preliminary Michigan Consumer Sentiment Index and Inflation Expectations for short-term impetus around the XAU/USD, which remains on track to register losses for the second straight week.
Gold price is pressured by a combination of factors; downside seems limited
- Traders closed out some profitable Trump trades, which triggered a US Dollar corrective decline from a four-month high and provided a goodish lift to the Gold price on Thursday.
- The USD decline remained uninterrupted after the Federal Reserve decided to lower its benchmark overnight borrowing rate by a 25 basis point, to a target range of 4.50%-4.75%.
- In the accompanying policy statement, Fed officials justified the easing mode as they view supporting employment becoming at least as much of a priority as arresting inflation.
- Furthermore, Fed Chair Jerome Powell, during the post-meeting press conference, failed to offer cues that the central bank may pause rate cuts in the near term amid sticky inflation.
- According to the CME Group’s FedWatch Tool, traders are pricing in 75% odds the Fed will cut rates again in December, leading to a further decline in the US Treasury bond yields.
- Donald Trump’s presidential election victory fueled speculations about economic policy shifts that could increase deficits and inflation, and restrict the Fed’s ability to cut rates.
- Meanwhile, hopes for an announcement of additional stimulus from China after a five-day meeting of the Standing Committee of the NPC remains supportive of the upbeat mood.
Technical Outlook: Gold price stalls the overnight recovery near 50% Fibo.
From a technical perspective, the recovery momentum falters ahead of a resistance marked by the 50% Fibonacci retracement level of the recent slide from the all-time peak. The said barrier is pegged near the $2,718 region, above which the Gold price could climb to the $2,734 area (61.8% Fibo. level). Some follow-through buying will suggest that the corrective pullback has run its course and lift the XAU/USD beyond the $2,750 static resistance en route to the $2,758-2,790 zone, or the record high touched on October 31.
On the flip side, the $2,672 region now seems to protect the immediate downside ahead of the $2,660 zone and the overnight swing low, around the $2,643 area, or the 50-day SMA support. A convincing break below the latter will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart have been losing positive traction, the Gold price might then accelerate the fall toward the October monthly swing low, around the $2,605-2,602 region.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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