Rising US treasury yields has kept gold prices subdued even as markets anticipate a rate cut from the Federal Reserve this week. XAU/USD has remained pressured below $2,660 as last week’s attempted bullish break was halted at $2,725. The precious metal has slipped back below a descending trendline from the recent highs, keeping the momentum limited.
Gold (XAU/USD) daily chart
Past performance is not a reliable indicator of future results.
However, sellers have also been kept at bay as the recent pullbacks have, for the most part, been contained above $2,630. The risk of geopolitical tensions and weakening economic data have kept investors interested in gold for diversifying purposes, which has prevented it from turning into a seller’s market. Even now, as rates in the US are expected to fall slower than expected, there is no real appetite to be a gold seller, which is evident by the continued support each time the momentum turns lower.
How markets perceive the US Federal Reserve will adjust its policy rate next year will be a key driver for gold. As a non-yielding asset, the opportunity cost for holding gold falls as rates comes down, which is a positive driver for price. Markets are convinced the Fed will cut rates in December, which could give XAU/USD a small boost on the day, but updated economic projections could show less rate cuts forecasted for next year as the economy remains resilient, and this could limit the upside in price.
Given rates are ultimately expected to come down next year, even if by a lesser amount, the argument still stands that this is not a seller’s market for gold, as fundamental conditions should improve. However, with how much bullish momentum XAU/USD has achieved this year, the upside may be slightly saturated for the next few months, suggesting a possible lack of direction and continuation of the sideways trend.
The best scenario for gold would be if the Fed anticipates inflation to slow faster than expected next year and therefore their rate cut forecast to remain unchanged, or even to be ramped up. This would lead markets to reprice their own expectations, which would likely give gold a boost back to the recent highs, and an attempt to break above $2,800.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page, then you do so entirely at your own risk.