Market Data 
- Gold price drops, pressured by Trump’s tariff threats against BRICS nations, rising US bond yields.
- US ISM Manufacturing PMI hits a six-month high, contributing to a stronger Dollar, limiting Gold’s gains.
- Mixed signals from Fed officials on rate cuts keep markets cautious; December FOMC meeting closely watched.
Gold prices slump as the last month of the year begins. They edge lower, weighed down by a strong US Dollar strengthened by Trump’s harsh rhetoric on BRICS countries and some easing of geopolitical tensions. The XAU/USD trades at $2,635, down 0.58%.
The golden metal extended its losses after Trump warned BRICS countries that moving away from the Greenback could make them face 100% tariffs “and should expect to say goodbye to selling into the wonderful U.S. Economy,” he added.
Once Monday’s Asian session got underway, XAU/USD plunged to a daily low of $2,621 before recovering some ground, but the jump in US Treasury bond yields and the US Dollar Index (DXY) capped Gold’s advance.
Data-wise, the US economic docket featured the release of the ISM Manufacturing PMI for November, which rose to its highest reading since June. Earlier, S&P Global announced that manufacturing activity in the United States (US) improved, indicating that the economy remains robust.
The Atlanta Fed GDP Now for Q4 2024 rose from 2.69% to 3.16% after the ISM data release.
Atlanta Fed President Raphael Bostic crossed the wires. Bostic stated he’s undecided on whether a cut this month is needed, but he believes that interest rates should continue to be lowered over the following months. He said that rates should be at a reasonable level that “neither stimulates nor restrains economic activity,” adding that he’s keeping his options open.
In the meantime, the CME FedWatch Tool shows that the odds for a 25-basis point rate cut stand at 63%, down from 66% last Friday. This suggests the December 17-18 meeting would be live.
Regarding geopolitics, US officials are concerned the Lebanon ceasefire could unravel, according to Axios. The White House is concerned that the fragile ceasefire in Lebanon could unravel after Israel and Hezbollah exchanged fire in recent days.
This week, the US economic docket will feature Fed speakers, including Chairman Jerome Powell, the JOLTs Job Openings for October, S&P and ISM Services PMI surveys, and Nonfarm Payroll figures.
Daily digest market movers: Gold price undermined by higher US real yields
- Gold prices dive as US real yields climbed one and a half basis points to 1.936%.
- The US 10-year Treasury bond yield rose almost two basis points to 4.196%.
- The US Dollar Index (DXY), which tracks the buck’s performance against six currencies, edged up 0.63% at 106.44 on the day.
- The ISM Manufacturing PMI in November rose from 46.5 to 48.4, exceeding forecasts of 47.5. The S&P Global Manufacturing PMI for the same period increased from 48.5 to 49.7, above the 48.8 expected by the consensus.
- Fed officials seemed convinced that further easing is needed and may cut rates at the December meeting. However, they adopted a more cautious stance, opening the door for a pause in the easing cycle.
- Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.
Technical outlook: Gold price retreats deeper below 50-day SMA
Gold’s uptrend remains intact, though buyers could not decisively clear the 50-day Simple Moving Average (SMA) of $2,669. Further consolidation lies ahead, as depicted by the Relative Strength Index (RSI) hovering around the 50 neutral line.
That said, if XAU/USD cleared the 50-day SMA, key resistance levels would be exposed, like $2,700, the $2,750 figure, and the all-time high at $2,790. On the other hand, if sellers drag the non-yielding metal below $2,600, they could target the 100-day SMA ahead of the November 14 swing low of $2,536.
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.
