Gold (XA/USD) rose 0.30% during the North American session on Friday despite rising US Treasury bond yields and the US dollar, which is set to end the week with a modest gain of 0.25%. At the time of writing, XAU/USD is trading at $4,344, having bounced off a daily low of $4,309.
Bullion prices rose late on Friday despite rising US yields and stable US dollar.
On Friday, the US economic docket is sparse, as the last ‘formal’ trading week of the year ends as most trading desks close for the Christmas holidays. The consumer sentiment index by the University of Michigan for December missed the mark, as those surveyed saw the unemployment rate rise, and purchases of durable goods declined for the fifth consecutive month.
Earlier, New York Federal Reserve (Fed) Chairman John Williams said he saw “no immediate need to change monetary policy.” As the greenback regained some ground, Williams’ stance changed from soft to neutral-hateful, while gold prices retreated to $4,320 before hitting a daily high.
On the week, gold prices hit a weekly high of $4,374 on Thursday, but buyers remained reluctant to test the year-to-date (YTD) high of $4,381 as global bond yields rose. US Treasury yields rose after the Bank of Japan raised rates from 0.50% to 0.75% on Friday.
The US economic circle will be busy on December 23 as the week will be shortened due to the Christmas holidays next week. Traders will digest the 4-week average of the ADP employment change, third quarter growth data upon its initial release, October durable goods orders and the industrial production print for October and November.
Daily Digest Market Movers: Gold price rises due to fall in consumer sentiment
- Gold prices rose despite solid gains in both US yields and the US dollar. The US 10-year Treasury note yield rose two and a half basis points to 4.147%. U.S. real yields, which are inversely correlated with gold prices, rose nearly three basis points to 1.907%.
- The US dollar index (DXY), which tracks the dollar’s value against a basket of six currencies, rose 0.22% to 98.63.
- US consumer sentiment dropped to 52.9 from 53.3 in December, below expectations from a print of 53.5. The University of Michigan survey also updated that one-year inflation expectations climbed to 4.2%, while five-year expectations stood at 3.2%, indicating that long-term inflation outlooks remain elevated but stable.
- New York Fed President John Williams said recent data point to further deflation, while noting that the rise in the unemployment rate may reflect temporary distortions, possibly by about a tenth of a percentage point, and is therefore not a surprising development. He said he does not feel any urgency to adjust monetary policy at this stage.
- On Thursday, the US consumer price index (CPI) for November rose 2.7%, up from a previous 3%. Despite this, economists cautioned that the data should be taken with a pinch of salt due to the 43-day US government shutdown, which may have distorted some of the data.
- According to Capital Edge Rate Probability data, expectations that the Fed will cut rates at the next meeting on January 28 remained unchanged at 22%. However, for the full year ahead, investors had priced in a discount of 60 basis points, with the first cut expected in June.
Technical Analysis: Gold price weakens as it falls from high at $4,381
Before the end of the year, the rise in gold came to a halt due to the strengthening of the yellow metal. Still, bullion is set to end the year with an appreciation of more than 60%, poised to test $4,500 and $5,000 next year.
For bullish continuation, XAU/USD needs to surpass the record high of $4,381 before hitting $4,400. A breach of the latter highlights $4,450 and $4,500. On the other hand, if gold slips below $4,300, traders could challenge the December 11 high of $4,285, followed by the psychological marks of $4,250 and $4,200.
Sona FAQ
Gold has played an important role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and falling currencies because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tonnes of gold, worth about $70 billion, to their reserves in 2022, according to World Gold Council data. This is the highest annual purchase since records began. Central banks of emerging economies like China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are both major reserve and safe-haven assets. When the dollar depreciates, gold rises, helping investors and central banks diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. Stock market rallies weaken the price of gold, while selling in riskier markets benefits the precious metal.
The price may increase due to a variety of factors. Gold’s safe-haven status could cause its price to rise sharply due to geopolitical instability or fears of a deep recession. As a yield-low asset, gold tends to rise with low interest rates, while higher costs of money generally weigh on the yellow metal. Still, most of the moves depend on how the US dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong dollar keeps the price of gold in check, while a weak dollar is likely to push gold prices higher.
