Key Takeaways
- Gold prices experienced a rally of over 1.50% following the Federal Reserve’s expected 25 basis point rate cut.
- Despite a hawkish tone from Fed Chair Jerome Powell regarding future rate decisions, falling US Treasury yields and geopolitical concerns supported gold.
- A temporary trade truce between the US and China may present a headwind for further gold price increases.
- Technically, gold is positioned to challenge the $4,000 mark, with key resistance levels identified at the 20-day SMA and higher peaks.
Gold Surges Amidst Fed Rate Cut and Geopolitical Undercurrents
Gold prices saw a significant increase, surpassing 1.50% on Thursday. This surge occurred shortly after the Federal Reserve (Fed) implemented a widely anticipated rate cut of 25 basis points. The decision was made with a 10-2 split vote, though Fed Chair Jerome Powell’s subsequent remarks at the press conference introduced a hawkish element, suggesting future rate reductions are not guaranteed. Despite these cautious comments, falling US Treasury yields and ongoing geopolitical tensions provided a strong tailwind for the yellow metal, pushing its price toward the $3,995 mark at the time of reporting.
Bullion Rebounds Above $3,990 Amid Softer Yields and Geopolitical Jitters
The Federal Reserve’s decision on Wednesday to lower borrowing costs by 25 basis points, bringing them to the 3.75%-4% range, was met with varied reactions. The dissenting votes came from Fed Governor Stephen Miran, who advocated for a larger 50 basis point reduction, and Kansas City Fed President Jeffrey Schmid, who opted to maintain current rates.
Fed Chair Jerome Powell’s statements during the subsequent press conference surprised market participants. He emphasized that a further reduction in the policy rate at the December meeting is not a foregone conclusion — far from it. This particular statement caused an initial dip in gold prices, pushing them below $3,920 before a recovery took hold during the Asian and European trading sessions on Thursday.
Powell further elaborated that the labor market remains a primary concern for the Fed. However, he also noted that the FOMC has been monitoring state unemployment claims, indicating that the jobs market is not experiencing a sharp deterioration, despite a lack of official comprehensive data. He also mentioned that some FOMC members believe interest rates are at or near a neutral stance.
The upward trajectory of gold prices might face limitations due to developments in US-China trade relations. Following a meeting between Presidents Trump and Xi Jinping in South Korea, where they engaged for several hours, an agreement for a one-year trade truce was reached.
Daily Market Movers: Gold Rallies Despite US Dollar Strength
💡 The US Dollar Index (DXY), which measures the dollar’s performance against a basket of six major currencies, showed strength by climbing 0.37% to 99.50.
📊 Conversely, US Treasury yields experienced a decline. The yield on the 10-year Treasury note remained flat at 4.091%. Meanwhile, US real yields, which have an inverse correlation with gold prices, saw a slight increase of one and a half basis points to 1.791%.
📌 In his remarks, US President Donald Trump described the meeting with President Xi as amazing. He stated that China had agreed to resume soybean purchases, and the US had reduced tariffs on fentanyl to 10%, while also leaving room for further discussions with Beijing on other trade aspects. Trump also indicated that the rare-earth issue had been resolved, and tariffs on certain Chinese products were lowered from 57% to 47%.
📍 The Federal Reserve’s monetary policy statement confirmed that the program of Quantitative Easing (QE) is scheduled to conclude on December 1.
⚡ According to data from Prime Market Terminal, expectations for a Federal Reserve rate cut in December have decreased to 76%, down from 85% prior to the Fed’s recent decision.
Technical Outlook: Gold Price Climbs Towards $4,000
The technical outlook for gold remains constructive, indicating potential for further gains. However, sustained bullish momentum will likely require buyers to achieve a daily close above the $4,000 level. Such a move would set the stage for testing the 20-day Simple Moving Average (SMA), currently positioned at $4,079.
The Relative Strength Index (RSI) suggests that buying sentiment is strengthening, pointing towards potential short-term upside. A decisive break above the 20-day SMA could open up resistance at the $4,100 mark, followed by the significant peak recorded on October 22 at $4,161.
Conversely, a failure to maintain the $4,000 level, with a daily close below it, could trigger a downward correction. This scenario might lead to further declines towards the low seen on October 28 at $3,886, and potentially test the 50-day SMA, which is hovering near $3,779.
Gold FAQs
Why do people invest in Gold?
Gold has held significant historical value as a reliable store of wealth and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, it is widely recognized as a safe-haven asset, making it an attractive investment during periods of economic uncertainty. Gold also serves as a hedge against inflation and currency depreciation, as its value is not tied to any specific government or issuer.
Who buys the most Gold?
Central banks are the largest holders of gold. They strategically diversify their reserves with gold to bolster the perceived strength of their currencies, particularly during volatile times. Substantial gold reserves can enhance a country’s economic credibility and solvency. In 2022, central banks collectively acquired approximately 1,136 tonnes of gold, valued at around $70 billion, marking the highest annual purchase on record, according to the World Gold Council. Emerging economies, including China, India, and Turkey, have notably been increasing their gold reserves.
How is Gold correlated with other assets?
Gold typically exhibits an inverse correlation with the US Dollar and US Treasuries, both of which are major reserve assets and safe-haven instruments. When the US Dollar depreciates, gold prices tend to rise, offering investors and central banks an avenue for asset diversification during turbulent periods. Gold also tends to move inversely to risk assets; a strong stock market rally often weakens gold prices, while sell-offs in riskier markets can benefit the precious metal.
What does the price of Gold depend on?
The price of gold is influenced by a diverse array of factors. Geopolitical instability or concerns about a severe recession can rapidly drive up gold prices due to its safe-haven status. As an asset that does not yield returns, gold generally benefits from lower interest rates, while higher borrowing costs tend to exert downward pressure on its price. However, a significant driver of gold price movements is the performance of the US Dollar, as gold is primarily priced in dollars (XAU/USD). A strong dollar typically caps gold prices, whereas a weaker dollar often leads to an increase in gold prices.
Expert Summary
The Federal Reserve’s recent rate cut, combined with geopolitical factors and easing US Treasury yields, has propelled gold prices upward. While Fed Chair Powell’s cautious stance on future rate cuts introduced some volatility, the overall sentiment has favored the precious metal. Investors are closely monitoring trade relations and economic indicators for further direction.