Gold falls amid US Dollar surge, traders eye US inflation figures
Gold slips with US Dollar gain, traders focus on US inflation data
Gold falls with Trump win reducing political risk; focus on potential inflationary policies.
US Dollar gains weigh on Bullion even as yields ease.
Powell signals slow moves toward adjustment, leaving future Fed path open amid economic strength.
Gold prices fell on Friday as the Greenback stages a comeback despite the decline of US Treasury yields. Investors are still trying to make sense of Donald Trump’s win in the US election, and they have backed off exposure on what is called the “Trump trade” since there are many clouds of uncertainty over tariffs. The XAU/USD trades at $2,688, up more than 0.67%.
US equities extended gains, regarding which election jitters have been the primary drivers of Bullion’s advance. However, risk over US politics has faded, and market participants would look toward Trump’s policies.
Following his victory, the US Dollar strengthened even though investors expect a less dovish Federal Reserve (Fed). Some of Trump’s policies are seen as inflation prone that would exert pressure on the US central bank.
The Fed cut rates Thursday, against the backdrop of a strong economy, a cooling labor market, and an evolving process of disinflation. But its officials noted that inflation “remains somewhat elevated” even as the benchmark approaches its 2% target.
Fed Chair Jerome Powell did not offer any forward guidance on monetary policy and kept options open at upcoming meetings. He underscored the fact that the Fed could afford to take its time cutting rates given how very strong the economy is. He acknowledged that policy remains restrictive, even after today’s rate cut, since officials want to get rates to neutral levels.
The US economic calendar will witness the release of the University of Michigan (UoM) Consumer Sentiment for November, which disappointed by coming in much weaker than its final reading for October. This very same report indicated mixed American public attitudes towards inflation expectations for both short- and long-term periods.
For next week, commentary from Federal Reserve officials will be influential, alongside key data releases of consumer and producer inflation together with retail sales, for Gold.
Daily Digest Market Movers: Gold price falls with data boost for Greenback
The gold price declined with US real yields, that trade inversely against Bullion, having recovered and rallied two basis points to 1.978%.
The US Dollar Index (DXY) that tracks the buck’s performance against six peers rallied 0.70% Friday to 105.09. Yields fall, with the 10-year benchmark note coupon down two basis points to 4.30%.
UoM Consumer Sentiment, the advance November reading, is up to 73.0 from 70.5, with a 3.5% increase. Per Survey Director Joanne Hsu: “While current conditions changed little, the expectations index rallied in all areas, reaching its highest since July 2021.”
One-year inflation expectations edged down to 2.6% from 2.7%, while the five-year view increased to 3.1% from 3.0%.
According to the December fed funds futures contract of the Chicago Board of Trade, investors currently expect about 24.5 basis points of easing by the Fed through year-end.
XAU/USD Technical Outlook: Gold price tumbles with sellers eyeing $2,650
Gold for immediate delivery retreated from a two-day high of $2,700, the point reached on Wednesday when bulls failed to break through. Sellers need to stay solid in their defense and push prices down below November 6’s low at $2,652 to force a move toward testing October 10’s low at $2,603.
On the other hand, if the price clears $2,700, then 20-day SMA at $2,718 would be eyed ahead of $2,750, as would be followed by the high of October 23 at $2,758.
Momentum still stands neutral, given that the Relative Strength Index floats around its middle line, implying XAU/USD is likely to go without a clear direction and stay consolidated.
Prices of gold have dived in the current market with a sharp fall influenced by the recent results of the U.S. elections. At this point, November 8, 2024, the gold futures traded around $2,691.7. The fall in prices was almost 0.52% from the previous close1. According to the current prices in India, 24k gold prices dropped by ₹1,790 per 10 grams to ₹78,710, while 22k gold dropped by ₹1,650 to ₹72,15012. The market expects a cut in interest rates by the Federal Reserve, but uncertainty surrounding future policies is going to pressure the gold prices even more.
Today, what led to the decline in gold prices?
The reason behind the decline in gold prices was a reversal of the market sentiment, with the recent U.S. election results as Donald Trump came out victorious forcing many speculations in the minds of investors on the future interest rate policies of the Federal Reserve; there will indeed be a cut, and at the same time, they think that Trump’s policy will inflate. Another reason was the strength of the U.S. dollar together with a surge in the yields of Treasuries, forcing its appeal for safe haven assets gold to decline even further, causing the yellow metal to decline to multi-week lows.
How changes in value of the dollar affect the price of gold?
Changes in the dollar value of the United States affect the price of gold mainly based on their inverse relationship. A strong dollar makes the gold costlier to its foreign buyers who find its price shooting through the roof. This brings about reduced demand as well as lower prices. On the other hand, a weak dollar relates to gold becoming affordable across borders, hence high demand and increased prices12. This dynamic is vital because gold is typically quoted in dollars; thus, the strength of currencies directly impacts both the purchasing power and investment behavior in the market for gold.
What was driving this five-year trend of a rising gold price and rising US dollar?
Gold and the U.S. dollar increased together over the last five years for several interrelated factors:
Global Economic Uncertainty: Higher geopolitical tensions and economic instability justify why investors have been transferring funds to safe-haven assets, such as gold, while, on the other hand, maintaining strong confidence in the dollar as a reserve currency.
Rising Global Debt: Global debt rising soars means increased demand for gold to hedge against possible currency devaluation. At the same time, the strength of the dollar has received a boost with its current status in the global economy.
Inflation Fears: Expectation of inflation is usually what has powered both the gold price and the demand for the dollar in light of expansive monetary policies, investors opting to keep their wealth.
This is a novel phenomenon; the dynamics in the two markets because both the assets also win in uncertainty.
What was it about the China-U.S. trade war that provoked the surge in gold and the U.S. dollar?
The China-U.S. The trade war had a significant impact on the surge of both gold and the US dollar. Since the trade tensions heightened, investors rushed more aggressively for safe havens in terms of gold and forced up its prices due to intensified demand within an uncertain economic environment. Meanwhile, the US dollar kept rising because it is the favorite reserve currency of the world that attracts capital flows during volatile periods. This was a dual demand for gold-as a hedge against geopolitical risks and for the dollar as a stable asset-and created a unique scenario where, instead of opposing each other, they could rise together.
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Why does gold become a safe haven asset during the COVID-19 pandemic?
Gold has been a safe haven asset during the COVID-19 pandemic, partly based on its historical function as a store of value and the asset that can hold its worth in the midst of financial travails. When global markets are experiencing unprecedented risk, investors seek safety, which increases demand for gold, generally an asset that performs well in crisis, protecting against inflation and currency devaluation. Studies showed that negative correlations between gold and stock indices during the pandemic also strengthened its safe haven, which is the reason investors always divert towards this metal for hedging against turbulent market conditions.
How do the historical roles of gold influence its being considered as a safe haven in the case of the COVID-19 pandemic?
Gold historical roles as a tool of storing value and as a natural currency have significantly contributed to its consideration as a safe haven in the COVID-19 pandemic era. Traditionally, gold is considered a hedge against inflation and market volatility, offering stability when financial systems get distressed. The research results showed that gold was not correlated with the stock market, presenting an anti-relationship during the pandemic scenario. Its indication further reiterated its appeal as a protective asset for risk averse investors who want to limit their exposure to uncertainty and liquidity pressure, which significantly relates to risk management. Such historical perception of gold as a safe investment starts to contribute to its current resurgence as the preferred safe haven in the crisis.