Gold Prices Rally Amid Geopolitical Developments and Weak US Dollar
- Gold prices surged by over 1.80% due to geopolitical tensions and a dip in the US Dollar Index to 106.27.
- Recent US support for Ukraine escalated tensions, impacting safe-haven assets like Gold.
- Traders adjusted Fed rate cut expectations, lowering the likelihood of a December adjustment from 82% to 62%.
At the beginning of the week, Gold prices rallied over 1.80% and surpassed $2,600 after hitting a two-month low of $2,536. The escalation of the Russia-Ukraine conflict, coupled with a weak US Dollar, fueled Gold’s upward movement on Monday. As of now, XAU/USD is trading at $2,610.
US Market Sentiment and Impact on Gold
Wall Street’s sentiment is mixed, with two of the four major US equity indices showing gains while the other two fluctuate. Geopolitical tensions continued to drive Gold’s price action after Russia’s attack on Ukraine prompted a response from the White House.
In response to Russia’s actions, US President Joe Biden authorized Ukraine to use long-range missiles inside Russia, as reported by CNN. This decision was a reaction to North Korean troops being deployed in support of Moscow’s war effort.
This development weighed on the Greenback, leading to a 0.38% decline in the US Dollar Index (DXY) to 106.27. However, concerns over potential inflation drivers like tariffs and lower taxes following Donald Trump’s victory boosted the US Dollar.
The Fed is expected to lower borrowing costs for the third consecutive meeting in December. Despite this, investors have reduced the odds of an imminent rate cut from 82% to 62%, based on data from the CME FedWatch Tool.
Factors Influencing Gold Price Movement
- Gold prices recover as US real yields decline, inversely correlating with bullion.
- US Treasury bond yields decrease, with the 10-year benchmark rate down to 4.42%.
- Comments from Boston Fed Susan Collins and Chicago Fed Austan Goolsbee impact market sentiment and Fed rate cut expectations.
- Investors are pricing in Federal Reserve rate cuts through 2024, based on futures contract data.
Technical Analysis and Price Forecast for Gold
Gold price resumed its upward trend following a ‘hammer’ formation on November 14, signaling a rebound. Buyers are targeting the 50-day Simple Moving Average (SMA) at $2,653, with resistance levels at $2,700 and $2,710. Downside support levels include the 100-day SMA at $2,547 and $2,500.
The Relative Strength Index (RSI) indicates bearish momentum in XAU/USD, suggesting potential further declines.
Understanding Risk Sentiment in Financial Markets
In financial markets, “risk-on” and “risk-off” refer to investors’ willingness to take on risk based on market conditions:
- Risk-On Market: Investors are optimistic and willing to buy risky assets.
- Risk-Off Market: Investors play it safe and opt for less risky assets.
During “risk-on” periods, stock markets, commodities, and certain currencies tend to rise. In contrast, “risk-off” markets see bonds, Gold, and safe-haven currencies gaining strength.