The price of gold has risen to a two-week high and received support from various factors.
Geopolitical risks, trade war concerns, and the prospect of major central bank interest rate cuts have boosted gold prices.
Rising US bond yields supported the US dollar and depressed gold prices ahead of the US consumer price index report.
On Wednesday, silver prices continued their weekly upward trend for the third consecutive day and climbed to a two and a half week high during the Asian session. Commodities are currently expected to continue their momentum, breaking through the $2700 mark and continuing to receive good support from various factors. The worsening of the Russia Ukraine war and the geopolitical risks brought about by tensions in the Middle East, as well as concerns about US President elect Donald Trump's tariff plans, continue to drive safe haven demand. In addition, the expectation of interest rate cuts by major central banks also provides further support for the zero yield asset gold price.
However, the recent rise of the US dollar (USD) reached a nearly one week high on Tuesday, suppressing further gains in gold prices denominated in US dollars. In addition, before the release of US consumer inflation data later today, bulls have chosen to reduce their bets, and these data may provide guidance for Federal Reserve policymakers' decisions next week. This will therefore affect the trend of the US dollar and provide new impetus for gold prices. Meanwhile, the fundamental environment indicates that gold/US dollar has the smallest upward resistance.
After the collapse of President Bashar al Assad's regime over the weekend, Israel launched airstrikes on military targets across Syria and deployed ground forces outside the non military buffer zone for the first time in 50 years. Ukrainian President Volodymyr Zelensky has issued an order to increase funding for equipping various brigades with new drones and proposed the idea of deploying foreign troops before Ukraine joins the NATO military alliance. US President elect Donald Trump has promised to impose huge tariffs on Mexico, Canada, and China, the three major trading partners of the United States, and has threatened to impose 100% tariffs on the so-called "BRICS countries". It is expected that the Bank of Canada will cut interest rates later today, while the European Central Bank and the Swiss National Bank may follow suit on Thursday, which should continue to boost zero yield asset gold prices. The Chicago Mercantile Exchange's Federal Reserve Watch tool shows that there is a probability of over 85% that the Federal Reserve will lower borrowing costs by 25 basis points at its December policy meeting. However, recent hawkish statements from several influential Fed officials, including Fed Chairman Powell, suggest that the Fed may take a more cautious stance on interest rate cuts. The expectation of dovish expectations from the Federal Reserve boosted US bond yields to close higher for the second consecutive day on Tuesday, and the US dollar rose to a four-day high, although it hardly suppressed the bullish outlook for gold prices. The market focus remains on the crucial US Consumer Price Index (CPI) report, which may provide clues about the outlook for US interest rates and provide new impetus for zero yield asset gold prices. It is expected that the overall consumer price index in the United States will increase by 0.3% in November, with an annual growth rate of 2.7%. Meanwhile, core inflation (excluding food and energy prices) is expected to remain unchanged at an annual rate of 3.3%.
From a technical perspective, this week's gold price broke through the resistance zone of $2650-2655 and subsequently rose, which is beneficial for bulls. In addition, the daily chart volatility indicator is also constantly rising and is far from entering the overbought area. This further confirms the recent positive outlook for gold prices and supports the prospect of some bullish positions near the resistance breakthrough points mentioned above. This should help limit the downward space of gold/US dollar around $2630, and once it falls below this area, gold prices may drop to the integer level of $2600.
On the upside side, if it continues to break through the $2700 integer, it may further extend its rise to the $2720-2722 level. Then there is the resistance level around $2735, and if it breaks through this resistance level, it indicates that the recent consolidation decline since the historical high reached in October has ended, leaning towards bulls. At that time, the gold price may rise to the level of 2758-2760 US dollars, and then gradually strengthen to the 2770-2772 US dollars region and the historical high of 2790 US dollars region.
Gold has played an important role in human history as it is widely used as a store of value and a medium of communication. At present, in addition to its attractive luster and jewelry use, precious metals are widely regarded as safe haven assets, which means that during turbulent times, gold is seen as a good investment. Due to its independence from any specific issuing institution or government, gold is also widely regarded as a tool for hedging against inflation and currency depreciation.
The central bank is the largest holder of gold. In order to support the local currency during turbulent times, central banks tend to diversify their reserves and purchase gold to increase the measurable strength of the economy and currency. Large scale gold reserves can become a source of trust for a country's solvency. According to data from the World Gold Council, central banks around the world increased their gold reserves by 1136 tons in 2022, equivalent to approximately $70 billion. This is the highest annual purchase volume on record. The central banks of emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold is inversely related to the US dollar and US treasury bond. Gold, US dollar and US treasury bond are major reserves and safe haven assets. When the US dollar depreciates, gold often rises, allowing investors and central banks to diversify asset risks during turbulent times. Gold is inversely proportional to risk assets. The rise of the stock market often suppresses the price of gold, while the emergence of sell offs in high-risk markets often benefits gold.
The price of gold is influenced by various factors. Geopolitical instability or market concerns about a deep economic recession can lead to a rapid rise in gold prices due to its safe haven status. As a zero yield asset, gold tends to rise as interest rates decrease, and rising monetary costs typically drag down gold. However, as gold is priced in US dollars (XAU/USD), most of its movements depend on the performance of the US dollar. A strong US dollar tends to suppress gold prices, while a weak US dollar may push up gold prices.