- Gold price catches fresh bids on Friday amid trade war fears and geopolitical tensions.
- The USD hits a fresh two-week low and offers further support to the XAU/USD pair.
- Bets for slower rate cuts by the Fed might keep a lid on the non-yielding yellow metal.
Gold price (XAU/USD) climbs to a fresh multi-day top heading into the European session on Friday and looks to build on this week’s goodish rebound from the $2,600 neighborhood. Investors remain concerned about the effect of US President-elect Donald Trump’s tariff plans on global economic growth. This, along with persistent geopolitical risks stemming from the protracted Russia-Ukraine war, continues to drive haven flows towards the precious metal.
Meanwhile, expectations that the Federal Reserve (Fed) will lower borrowing costs again in December keep the US Treasury bond yields depressed and drag the US Dollar (USD) to over a two-week low. This turns out to be another factor that benefits the non-yielding Gold price. That said, Trump’s inflationary policies and signs that the progress in lowering US inflation stalled in October could limit the scope for the Fed to ease further, which might cap the XAU/USD.
Gold price remains well supported near multi-day top as investors take refuge in safe-haven assets
- Russian President Vladimir Putin said Russia may use its new hypersonic missile to attack decision-making centres in Ukraine in response to the latter’s firing of Western missiles at its territory.
- US President-elect Donald Trump earlier this week pledged to impose tariffs on all products coming into the US from Canada, Mexico and China, which, in turn, could trigger trade wars.
- The US Dollar struggles to capitalize on Thursday’s modest gains as traders now see a 70% chance that the Federal Reserve will cut interest rates at the next policy meeting in December.
- Minutes from the November FOMC meeting released earlier this week revealed that committee members were divided over how much farther they may need to cut interest rates.
- The PCE data showed on Wednesday that the progress in lowering inflation in the US stalled in October. Investors also seem convinced that Trump’s policies will boost inflation.
- This suggests that the Fed may proceed cautiously, fueling uncertainty over the outlook for interest rates in 2025 and limiting any further decline in the US Treasury bond yields.
- The benchmark 10-year US Treasury yield touched a two-week low on Wednesday on hopes that Trump’s Treasury Secretary nominee, Scott Bessent, will want to control US deficits.
- There isn’t any relevant market-moving economic data due for release on Friday and US stock markets will close early in observance of the Thanksgiving holiday.
Gold price needs to find acceptance above 50% retracement level for bulls to retain intraday control
From a technical perspective, an intraday breakout above the $2,649-2,650 confluence hurdle – comprising the 100-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the weekly decline – was seen as a key trigger for bulls. The subsequent move up, however, stalls near the $2,663-2,664 region, which coincides with the 50% retracement level and should act as a pivotal point. Some follow-through buying has the potential to lift the Gold price to the $2,677 region, or the 61.8% Fibo. level, en route to the $2,700 round figure.
On the flip side, the $2,650 confluence resistance breakpoint now seems to protect the immediate downside, below which the Gold price could slide back to the $2,633 area (23.6% Fibo. level) and the overnight swing low, around the $2,620 region. The next relevant support is pegged near the monthly trough, around the $2,605 region. Some follow-through selling below the $2,600 mark should pave the way for deeper losses towards the 100-day SMA, currently pegged near the $2,573 area, en route to the monthly low, around the $2,537-2,536 region.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
