The reversal of real yields has removed the headwinds for gold prices. However, the relationship between gold and real yields has collapsed, suggesting that it is a smaller factor in the commodity’s recent rally. The daily correlation between the 10-year real yield and gold fell to around 0.2, down from 0.7 in September.
However, weaker US economic data and expectations of slowing economic growth have pushed markets to price peak US interest rates and, eventually, interest rate cuts next year, which was one of the factors pushing gold prices higher.
Despite the rise in gold prices, the situation in the futures market remained unchanged for the second week in a row. The trend indicates that there is no additional speculative demand for the commodity; however, with net buy positions relatively low compared to historical comparisons, it can be argued that a large number of buyers are waiting on the sidelines to push gold higher.
Recently, gold’s main driver has been the weakening of the US dollar, which has led to a broad mechanical rise in commodity prices. The dollar fell as markets expected future rate hikes by the US Federal Reserve in response to weak economic data and subsequent expectations of deeper rate cuts next year. A series of important US data will be released this week, including preliminary GDP figures, PCE index data, and a survey ISM Manufacturing.
Currently, gold prices are mostly one of the factors of the US dollar, so the price movement in gold can be determined by the movement of the US dollar. Technically, gold is moving in an uptrend channel as momentum tilts upwards. Support for an uptrend line can attract buyers. Meanwhile, the resistance zone is around US$2,005 and US$2,010.
Gold prices rise as interest rate cuts expected in the United States
Gold prices hit a seven-month high amid a general weakening of the dollar and hopes that the Federal Reserve will turn to a pessimistic stance. Hopes for a rate cut were renewed after recent U.S. consumer price inflation readings showed a flat reading. The expected decline in inflation readings based on personal consumption expenditures also supported sentiment towards the yellow metal.
The dollar index, a measure of the dollar’s relative strength, fell 0.20 percent to 102.99 from the previous close of 103.20. The index traded between 102.97 and 103.32 on the day, and between 99.58 and 107.35 over the past 52 weeks. The dollar’s weakness was driven by lower safe-haven demand and expectations of declining PPE-based inflation readings.
Data released on Thursday is expected to show the PCE price index falling year-on-year to 3 percent, from 3.4 percent in the previous month. The core component is also expected to decline to 3.5%, from 3.7% in the previous month. The PCE price index is expected to decline month-on-month to 0.1 per cent, from 0.4 per cent in the previous month. The core component is also expected to decline to 0.2%, from 0.3% in the previous period.
The expected decline in PCE readings, often seen as the Fed’s preferred inflation measure, is seen as pushing the Fed to cut interest rates. The decline in interest rates is positive for gold because it reduces the opportunity cost of holding non-interest assets. so I think this is the situation where the markets will continue to search for value, and then take advantage of it.
Gold Rises Supported by Weaker Dollar and Falling US Bond Yields
The price of gold rose to a six-month high, more than 0.50% on Tuesday, early in the North American session, as the US dollar remains on the defensive, weighed down by lower US Treasury yields. At the time of writing, the XAU/USD pair is trading at USD$2,025, after rebounding from daily lows of USD$2011.79.
The market mood turned sour as participants await statements from some US Federal Reserve officials during the day. U.S. economic data revealed house prices, which expanded by 6.1% year-on-year in September, according to the Federal Housing Finance Agency (FHFA). The report showed that the cost of mortgage loans has fallen as the Fed kept interest rates unchanged during the last two meetings. Speculation is growing that the US central bank has finished raising interest rates, which led to lower US Treasury yields.
Meanwhile, money market futures have been priced at an 85 basis point cut for next year. Therefore, the US Dollar Index (DXY), which measures the dollar’s performance against six currencies, is down 0.22%, at 102.97. The yield on the 10-year US Treasury bond was almost unchanged at 4.40%.
Federal Reserve Bank of Chicago President Austan Golsby is expected to make some remarks around 15:00 GMT. At the same time, the conference board is expected to release the November consumer confidence index, which it awaits at 101, indicating a slight deterioration compared to October’s data of 102.6, along with the Richmond Federal Manufacturing Index. However, if we get the breakout, the market will probably start to take off already. This will open “FOMO Trading””, so I think it’s probably a huge trade late in the year.
Gold prices expected to rise as bullish momentum continues
Gold markets rose again early Tuesday, but it looks like we’re trying to break out of the potential double top pattern. This area where we are currently has been very difficult to penetrate more than once, so I think you need to be very careful at this point. Sure, a pullback is possible, but I’m not going to sell gold, because it’s frankly very powerful. If we break above the 2020 level, I think this is most likely a scenario in which we can go to the 2100 level fairly quickly, as this would be a major breakout for the resistance.
Below, level 2000 is an area that I think a lot of people care about because of the psychology of this whole number, but it’s also been cut up a few times, so it’s very likely that even if we break below that level, you can’t read much in this step. The 50-day moving average is close to the 1970 region and is rising. In the end, this could be the bottom in the market at the moment, and it is worth noting that the recent pullback was to the Fibonacci level of 38.2% and the 200-day moving average indicator. With all factors neutralized, this is a situation where traders will continue to see bullish momentum more than anything else. Usually, when the market pulls back to the 38.2% Fibonacci level, you have a situation where the market has a huge amount of momentum.
With all factors neutralized, I think you will continue to buy pullbacks in this market ahead, and therefore I have absolutely no interest in trying to sell this market. Below there is a lot of support and hype
