Gold faces profit-taking one week before Trump takes office
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- The price of gold snapped its winning streak on Monday as markets watched the release of the non-farm payrolls report.
- Traders and investors remain cautious and prefer safe-haven assets such as gold and the US dollar.
- Gold is looking for support before reviving the rally.
The price of gold (XAU/USD) took a step back along with yields and halted its four-day winning streak on Monday, as markets tracked and repriced the latest release of the US Non-Farm Payrolls report. The report further confirms the narrative that the Federal Reserve (Fed) may keep interest rates higher for longer. While higher borrowing costs are typically a negative for non-interest bearing precious metals, investors are bracing for more volatility before President-elect Donald Trump returns to the White House on January 20.
On the economic data front, it was a relatively quiet trading day, with the dust settling further after the recent release of the US Non-Farm Payrolls report. This Monday, the US Treasury will allocate some short-term bonds to the market.
Daily Market Movers Summary: Monday Mania
- Operations at Wilton Resources’ Ciemas Gold project in Indonesia remained suspended due to ongoing power outages amid heavy rainfall caused by La Nina, according to a press release issued Friday, Bloomberg reported.
- The Indonesian unit, Masmendu Doi District, has selected McMahon as the mining services contractor for the Awak Mas gold project in South Sulawesi, according to a stock exchange filing, Bloomberg reported. The value of the contract is 463 million Australian dollars over a period of seven years and is expected to begin in mid-2025.
- At 16:30 GMT, three- and six-month US Treasury bills are scheduled to be auctioned.
- The US benchmark 10-year interest rate is trading at 4.782% at the time of writing on Monday, slightly below the peak at the open in Asia of near 4.796%.
- At 21:30 GMT, the Commodity Futures Trading Commission (CFTC) will release NC’s net gold positions. Forecast is not available, but the previous position was $247,300. The report provides information on the size and trend of positions taken across all maturities, and participants are primarily based in the Chicago and New York futures markets. Forex traders focus on “non-commercial” or speculative positions to determine whether the trend is still healthy or not, as well as market sentiment towards a particular asset.
Technical Analysis: Critical mass is needed to promote further upside
Gold broke through the strong pennant formation, which was mentioned several times last week. Despite all the headwinds from rising yields and the strength of the US Dollar (USD), bullion has been able to continue to be strong. The nearby support now needs to hold to avoid the gold price falling back to the flag triggering a false breakout with the risk of further downside at hand.
On the downside, the downtrend line near $2,678 should remain as support to avoid a return to the pennant formation. The 55-day simple moving average (SMA) at $2,652 is the next support after seeing a daily close above it on Wednesday. In case of further decline, the 100-day SMA at $2,635 is next in line.
On the upside, $2,708 is the next pivot level to pay attention to. Once we get past this level, although it is still very far away, the $2790 level is the major upside, which will be a new all-time high.
XAU/USD: daily chart
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and against currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, 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 rise in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.