Gold regained positive momentum following Thursday’s pullback from a multi-month high.
The gold price (XAUUSD) attracts some dip-buyers during the Asian session on Friday, reversing a portion of the previous day’s profit-taking slide from a five-week high near $2,726.
Geopolitical risks, trade war fears, and Fed rate cut bets continue to support the commodity.
Geopolitical risks from the Russia-Ukraine war and Middle East tensions, as well as concerns about US President-elect Donald Trump’s tariff plans, are all driving up safe-haven demand. Aside from that, the growing market belief that the Federal The fact that the Federal Reserve (Fed) will cut interest rates for the third time in a row at the end of its December policy meeting next week is one of the key factors supporting the non-yielding yellow metal.
Expectations for a less dovish Fed and higher US bond yields may cap the precious metal.
Meanwhile, signs that progress in bringing inflation down to the Fed’s 2% target has stalled suggest that the US central bank will be more cautious about cutting interest rates. This continues to support elevated US Treasury bond yields and acts as a tailwind for the US Dollar (USD), potentially capping gains in the gold price. Traders may also refrain from placing aggressive bets and instead wait for the results of the FOM meeting next Wednesday. Investors will look for cues on the Fed’s rate-cutting path to determine the next leg of a directional move for the greenback and precious metals.
Daily Market Update: Gold price receives some support from haven flows; the upside appears limited.
Ukraine has launched US-supplied missiles at strategic sites deep inside Russian territory. Meanwhile, Russian forces are closing in on Pokrovsk, a key eastern Ukrainian city, following a month of intense fighting.
Israel said on Thursday that its military would remain in the Syrian territory it had seized until a new force was established to meet its security demands and fill the vacuum left by the Syrian regime’s collapse.
This represents a significant escalation in geopolitical tensions and drives some haven flows towards the gold price amid bets that the Federal Reserve will lower borrowing costs at the end of the December meeting.
In the absence of a major upside surprise from the latest US consumer inflation figures released on Wednesday, the markets appear to have fully priced in a 25 basis point Fed rate cut next week.
The US Bureau of Labor Statistics reported on Thursday that the headline Producer Price Index (PPI) increased 0.4% in November, with the yearly rate rising from 2.6% in October to 3% in the reported month.
PPI increased 0.2% in November to 3.4% compared to the same period last year.
The annual core PPI increased 0.2% in November to 3.4% compared to the same period last year, exceeding expectations and indicating that progress toward lowering inflation to the 2% target has stalled.
This comes on top of expectations that US President Donald Trump’s expansionary policies will boost inflation and suggests that the Fed will be more cautious in future interest rate cuts.
Expectations for a less dovish Fed continue to drive up US Treasury bond yields and help the US Dollar maintain its weekly gains to a new monthly high, potentially capping the lower-yielding yellow metal.
Investors are looking forward to the crucial FOMC policy decision next week for cues about the US interest rate outlook. This will drive USD demand and provide a significant boost to the Gold (XAUUSD).
