Gold prices climbed to its highest level since May on Tuesday, amid USD weakness and lower US Treasury yields.
Gold rose for a fourth consecutive session on Tuesday and hit a more than six-month high, driven by a retreating dollar and expectations that the U.S. Federal Reserve has finished hiking interest rates.
Weaker US economic data and expectations of an unfolding slowdown in economic growth have led the markets to Gold price in a peak in US interest rates and, eventually, rate cuts next year, which has been one-factor driving gold prices higher
The bias in gold and silver remains up with more measured and hard-fought gains are likely with outside market forces a weaker dollar and lower US interest rates the foundation of the bull camp.
As indicated already, we leave the bias with the bull camp as the twin pillars of outside market support (a weaker dollar and declining treasury yields) look to continue their recent trends. In fact, both outside market influences are accentuated by this week’s softer than expected US scheduled data which adds to the trend of softer US data.
While we see the bias pointing up, significant compacted gains over the last several sessions increases the potential for significant volatility especially if the US note auction is ill received. In the end, outside market influences and the charts leave control with gold bulls with support from uptrend channel pricing.
Dollar- The dollar index on Monday fell by -0.18%. On Monday, the dollar gave up early gains and posted moderate losses as weaker-than-expected U.S. economic news on October new home sales and the Nov Dallas Fed manufacturing outlook weighed on the dollar. Also, lower T-note yields on Monday weakened the dollar’s interest rate differentials and undercut the dollar
Weak data – Monday’s U.S. economic news was weaker than expected and bearish for the dollar. Oct new home sales fell -5.6% m/m to 679,000, weaker than expectations of 721,000. Also, the Nov Dallas Fed manufacturing outlook of general business activity unexpectedly fell -0.7 to a 4-month low of -19.9, weaker than expectations of an increase to -16.0.
Demand- demand for gold world over has been overwhelming despite rising prices. Two biggest gold consumers of the world – India and China saw a surge in demand. In India it was the festive season that resulted in this spike. Jewellers and Bullion dealers , both, were overjoyed to see this rise in demand .
In China too, demand for gold bars and gold coins came in at 82 tons in the third quarter, despite surging gold prices in yuan terms. It was a 16% increase year-on-year and the strongest Q3 Chinese gold investment demand since 2018. It was also above both the five-year and 10-year third-quarter averages.
So these three D’s – DOLLAR, DATA & DEMAND played a pivotal role this week for the yellow metal.
The near-term outlook for gold remains bullish, with the dollar index in a downtrend on hopes the Fed will no longer raise interest rates and will maybe even cut them by springtime.
A triple-top pattern has kept gold capped below $2,080 since 2020. But now bullion looks ready to take a fourth crack at breaching that threshold if dollar weakness continues.
Where the precious metal goes next could be dictated by US data especially Friday’s PCE inflation report, for clues on US growth and policy. Signs of cooling inflation would limit the Fed’s scope for higher rates, aiding gold. Economic jitters could also spur safe-haven inflows.