Gold rallies higher, approaching $2,690 on higher demand for safe assets

Published on December 10, 2024

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Guillermo Alcala
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Gold rally maintains its positive momentum intact fuelled by buying from China and safe-haven flows.
The US Dollar’s moderate recovery is weighing on Gold.
XAU/USD’s technical picture remains positive with price action standing above the last two week’s trading range.

Gold (XAU/USD) maintains a mild bullish tone on Tuesday. The tone shift by China’s Politburo, vowing further economic stimulus to support growth, and the resumption of Gold purchases by the People’s Bank of China (PBoC) are acting as a tailwind for the precious metal.

Other sources of support for Gold are the safe-haven flows triggered by the uncertainty in the Middle East, after the fall of Bashar al-Assad’s regime in Syria, and the political deadlocks in France and Germany.

Finally, growing bets that the Federal Reserve (Fed) will cut rates next week keep US yields close to multi-week lows, and provide additional support to the yieldless metal.

Daily digest market movers: A somewhat stronger Dollar is weighing on Gold’s recovery

China’s PBoC reported buying 160,000 ounces in November after a six-month pause. This has boosted expectations of further Gold appreciation and will likely underpin speculative demand for Bullion.
In Syria, the diverse rebel factions are starting negotiations to form a government while foreign powers like Israel and Turkey take positions. The increasing uncertainty in an already volatile region will underpin demand for the safe-haven Gold.
The US Dollar is trading moderately higher awaiting Wednesday’s Consumer Prices Index (CPI) figures to clarify the Feds’s monetary easing calendar for 2025.
The CME Group’s Fed Watch Tool reveals an 86% chance of a 25 bps Fed cut after the December 17-18 meeting and between two and three more cuts in 2025.
US consumer inflation is expected to confirm that inflation remains sticky above the Fed’s 2% target rate. The headline CPI is expected to have ticked up to a 2.7% yearly rate, from 2.6% in October with the core CPI steady at 3.3% year-on-year.

Technical analysis: XAU/USD confirms the break of $2,665, aiming for 2,690

Gold is under a renewed bullish momentum, favoured by a weak market mood. The pair has confirmed above the top of the last two week’s trading range at $2,660 and is aiming for the $2,690 intra-day level. Technical indicators are positive and the DXY has reached a resistance area.

Above here, the next target would be November 24 high at $2,720. On the downside, previous resistance, at $2,665 has turned support. Below here, the target would be the December 9 low at $2,630

XAU/USD 4-Hour Chart

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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