Gold price advances on Thursday after reaching a daily high of $4,019, but retreats below the $4,000 mark even though the US Dollar and US Treasury yields tumbled. At the time of writing, XAU/USD trades with gains of over 0.10% at around $3,985.
Bullion steadies after brief pullback, supported by weaker Dollar, falling yields, and renewed political and trade uncertainty
US Dollar weakness was the main driver that kept the yellow metal underpinned during the day, as the US government shutdown could extend further, said the Republican House Leader Mike Johnson, who added that he’s less optimistic about the shutdown ending.
Markets were also shaken by the release of the Challenger report, which revealed that companies slashed over 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years. The news triggered a reprice of a rate cut by the Federal Reserve (Fed) at the December meeting.
Meanwhile, the US Supreme Court is growing skeptical about US President Donald Trump’s tariffs, as reported by Bloomberg, that added, “Businesses and countries suffering from the duties and looking for resolution, though, are set for months of uncertainty.” Consequently, Bullion seems poised to resume its uptrend as it usually performs well in uncertain and low-interest-rate environments.
Aside from this, Federal Reserve (Fed) officials are crossing the wires, led by Cleveland’s Fed Beth Hammack, sticking to her hawkish rhetoric. At the same time, Fed Governor Michael Barr was slightly more neutral, echoing some comments by New York Fed John Williams, who said that neutral rates would be around 1%.
Daily market movers: Gold surges as US yields drop
- The US Dollar Index (DXY), which tracks the performance of the American currency against six other currencies, slumps 0.42% down to 99.73.
- US Treasury yields are also plunging, with the 10-year Treasury note yield diving seven and a half basis points to 4.085%. US real yields — which correlate inversely to Gold prices — collapse eight and a half basis points to 1.785%.
- The US Challenger report by Gray & Christmas showed that employers fired over 150,000 people in October, the largest reduction for the month in more than 20 years. The survey noted that industries adopting AI-driven changes are the main reason behind the layoffs.
- After the data, money markets see a 69% chance of a 25-basis-point rate cut by the Federal Reserve, up from 62% a day ago, according to Prime Market Terminal data.
- Cleveland Fed Beth Hammack said that it is not obvious that the Fed should cut rates again, given inflation. She said that financial conditions are accommodative, and that despite the jobs market looking fragile, she expects the unemployment rate to tick lower.
- Fed Governor Michael Barr said that progress has been made on inflation, “but there is still work to do.” He added that the central bank must pay attention to “the job market is solid.”
- New York Fed John Williams said the natural rate of interest is hard to pin down. He added that model-based US neutral rate estimates are around 1%.
- Chicago Fed President Austan Goolsbee said the lack of official data on inflation during the shutdown “accentuates” his caution about cutting interest rates further.
Technical outlook: Gold price climbs towards $4,000
Gold prices are edging higher after finding a short-term floor around $3,964, the day’s low, though bulls must reclaim the $4,000 milestone and finish the day above the latter on a daily basis to extend the recovery. The Relative Strength Index (RSI) is trending higher, showing improving momentum, but remains below the neutral 50 mark.
A sustained move above $4,000 would expose resistance at the 20-day Simple Moving Average (SMA) near $4,083. On the downside, a drop below the October 28 low of $3,886 would open the door for a test of the 50-day SMA around $3,854.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.