Gold (XAU/USD) erases earlier gains on Friday as a firmer US Dollar (USD) tempers bullish momentum, with the metal oscillating within the familiar range that has defined price action this week.
At the time of writing, XAU/USD is trading near $4,215, with dovish Federal Reserve (Fed) expectations continuing to offer a supportive backdrop, helping limit downside despite the intraday pullback.
The US Dollar bounced off earlier lows after the delayed US Personal Consumption Expenditures (PCE) report for September offered no surprises. Core PCE, the Fed’s preferred gauge, rose 0.2% MoM, matching expectations, while the annual rate eased to 2.8% from 2.9%.
Headline PCE held steady at 0.3% MoM, matching the forecast and remaining unchanged from the previous month. On a yearly basis, the Index came in at 2.8%, in line with expectations and slightly above August’s 2.7%.
The broadly steady inflation readings did little to shift the policy outlook, with markets still largely convinced that the Fed will lower rates at next week’s monetary policy meeting.
Market movers: Fed outlook and Russia-Ukraine peace talks in focus
- Personal Income rose 0.4%, above the 0.3% forecast, while Personal Spending increased 0.3% in line with expectations, easing from August’s 0.5% rise. The preliminary University of Michigan survey improved in December, with the Consumer Sentiment Index rising to 53.3 versus a 52 forecast, up from 51, while the Expectations Index climbed to 55 compared with the 51.2 forecast, also up from 51.
- Recent US labour data show ADP Employment Change falling by 32,000 in November, sharply missing expectations for a 5,000 increase after a revised 47,000 gain in October. Challenger Job Cuts dropped to 71.3K from 153.1K, while Initial Jobless Claims declined to 191K, beating expectations for 220K and down from 218K last week.
- These labour indicators are among the few data points the Fed has ahead of its policy decision. October and November Nonfarm Payrolls will be released together on December 16, which comes after the meeting. The next key update before the decision will be next week’s JOLTS Job Openings report.
- According to the CME FedWatch Tool, markets assign about an 87% probability of a 25 basis point (bps) rate cut at the December 9-10 monetary policy meeting.
- Elsewhere, geopolitical tensions remain in focus as Russia-Ukraine peace efforts show little progress. The Kremlin described recent talks with US envoys as “encouraging,” yet key territorial disagreements persist, keeping uncertainty elevated and offering a layer of support for safe-haven assets such as Gold.
Technical analysis: XAU/USD needs a break above $4,250 to regain traction
XAU/USD continues to trade sideways after breaking out of a symmetrical triangle pattern, with a lack of follow-through buying keeping upside attempts capped near $4,250.
On the 4-hour chart, XAU/USD is hovering around the 21-period Simple Moving Average (SMA), reflecting a neutral short-term bias. However, the broader uptrend remains intact and any dips are still likely to attract buyers.
On the upside, a clear break above $4,250 is needed to revive bullish momentum, opening the door toward $4,300 and potentially a retest of the all-time high near $4,381.
On the downside, support is seen at the lower edge of the recent consolidation zone around $4,160-4,170, followed by the 100-period SMA near $4,141.
Momentum indicators paint a neutral-to-bullish picture. The Moving Average Convergence Divergence (MACD) histogram is narrowing toward the zero line while remaining slightly negative, indicating fading bearish pressure as the MACD line holds just below the signal line near the midpoint. The Relative Strength Index (RSI) around 58 signals steady momentum without strong directional conviction.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
