21 Nov 2024

Gold prices have attracted buyers for the fourth consecutive day, reaching a peak not seen in over a week. The ongoing geopolitical tensions related to the Russia-Ukraine conflict have enhanced the appeal of the safe-haven asset XAU/USD. However, the rise in US bond yields may support the US Dollar and limit the upward movement of the non-yielding yellow metal.

Currently, gold (XAU/USD) maintains a positive momentum as it approaches the European trading session, trading around the $2,660 mark, which represents a one-and-a-half-week high achieved earlier today. This upward trend is driven by the escalating geopolitical risks associated with the Russia-Ukraine war, which have bolstered demand for the precious metal. Additionally, a slight decline in the US Dollar provides further support for gold prices.

Nevertheless, the high US Treasury bond yields, fueled by expectations that the proposed tariffs from President-elect Donald Trump could lead to inflationary pressures and restrict the Federal Reserve's ability to lower interest rates, may limit the potential for gold price increases. Furthermore, the prevailing risk-on sentiment in the equity markets suggests a need for caution before making aggressive bullish investments in the safe-haven XAU/USD.

Gold price bulls maintain short-term dominance as tensions between Russia and Ukraine heighten demand for safe-haven assets.

Geopolitical strains escalated following Russian President Vladimir Putin's decision to lower the threshold for nuclear engagement, bolstering the price of gold for the fourth consecutive day on Thursday.

Market participants appear to believe that the proposed expansionary policies of US President-elect Donald Trump could lead to increased inflation, potentially prompting the Federal Reserve to decelerate its rate-cutting strategy.

Additionally, several prominent Federal Reserve officials have recently expressed caution regarding further policy easing, which supports elevated yields on US Treasury bonds and keeps the US Dollar near its year-to-date peak.

Lisa Cook, a member of the Federal Reserve Board of Governors, indicated on Wednesday that the central bank may be compelled to pause interest rate reductions if progress on inflation falters.

In a related statement, Fed Governor Michelle Bowman remarked that advancements in inflation seem to have stagnated, advocating for a prudent approach to monetary policy.

Meanwhile, Boston Fed President Susan Collins acknowledged the necessity for additional interest rate cuts but emphasized the importance of a careful approach to avoid acting too hastily or too slowly.

According to the CME Group's FedWatch Tool, traders are currently estimating just over a 50% likelihood that the Fed will reduce borrowing costs at its December monetary policy meeting.

The yield on the benchmark 10-year US government bond experienced its largest increase in a week on Wednesday, which, coupled with a favorable risk sentiment, may limit the upward movement of the safe-haven precious metal.

The US economic calendar for Thursday includes the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales data, which will be released later in the North American session.

Investors will also closely monitor speeches from Federal Reserve officials for insights regarding the future trajectory of rate cuts, which will influence the USD and provide momentum for the non-yielding XAU/USD.

Gold price could appreciate further towards the next relevant hurdle near the $2,670-$2,672 region

From a technical perspective, the intraday move-up faces some resistance near the 50% retracement level of the recent pullback from the all-time peak touched in October. The said barrier is pegged near the $2,660 area, above which the Gold price could accelerate the momentum towards the $2,670-2,672 congestion zone. Some follow-through buying could allow the XAU/USD to aim at reclaiming the $2,700 round figure. 

On the flip side, the $2,635-2,634 area, or the 38.2% Fibonacci retracement level, now seems to protect the immediate downside ahead of the $2,622-2,620 region and the $2,600 round figure. A convincing break below the latter could make the  price vulnerable and expose the 100-day Simple Moving Average (SMA), around the $2,557 region, with some intermediate support near the $2,570 zone. This is followed by last week’s swing low, around the $2,537-2,536 area, which if broken decisively will be seen as a fresh trigger for bearish traders and set the stage for deeper losses.