Gold rises due to “buy the fact” trade after news of Lebanon ceasefire

• Gold rises as traders “buy the fact” of the ceasefire deal brokered between Israel and Hezbollah on Tuesday. 
• Technical support from a major trendline is also adding upside pressure as it represents a key chart level for Gold. 
• Wednesday sees an economic data dump from the US; changes in interest rate expectations could impact Gold price.  

Gold (XAU/USD) recovers into the $2,650s on Wednesday as traders “buy the fact” of the ceasefire deal brokered between Israel and Hezbollah after “the rumor” led to heavy selling on Monday. The two warring parties agreed on a 60-day ceasefire deal which has, so far, held, although sceptics say it will remain unsustainable without an end to hostilities in Gaza, according to Bloomberg News. 

Gold may also be rising from safe-haven flows due to other geopolitical hotspots. Reports from Ukraine suggest the frontline is becoming “as unstable as at the start of the war,” according to the UK’s Secretary of State for Defence, John Healy.   

A weaker US Dollar (USD) on Wednesday, meanwhile, may be providing Gold with a tailwind, given its negative correlation to USD.

The Dollar faces volatility after the release of mixed US metrics for growth and the labor market and Gold has rising a few bucks after the data dump.

US preliminary Gross Domestic Product (GDP) data for Q3 rose by 2.8% as expected and same as the previous quarter. US Durable Goods Orders in October, however, failed to match expectations of 0.5%, coming in at 0.2%, although the previous month's 0.8% decline was revised up to a 0.4% fall. 

On the labor front, both Initial Jobless Claims for the week ending November 22 and Continuing Claims for the week of November 15 came out lower than expected, suggesting continued strength in the employment market, which should support the Greenback but weigh on Gold. 

Gold rises as market bets increase of Fed cutting  

Gold might be further supported by the steady rise in the probability of the Federal Reserve (Fed) cutting interest rates at its December policy meeting, according to the CME FedWatch tool, which calculates probabilities based on the fluctuating price of 30-day Fed Fund interest rate futures. 

From determining about a 56% probability of the Fed cutting interest rates by 25 basis points (bps) (0.25%) at its meeting in December, at the start of the week, the CME tool now calculates the chances at around 63%. The probability of the Fed not cutting interest rates at all has fallen from 44% to 37% over the same period. 

The increased chances of the Fed cutting interest rates is positive for Gold price as it lowers the opportunity cost of holding the non-interest-bearing asset, making it more attractive to investors. 

Technical Analysis: XAU/USD bounces off major trendline

Gold has bounced off a major trendline that reflects the precious metal’s long-term uptrend on Wednesday. 

XAU/USD Daily Chart

 

The precious metal trend is in a medium and long-term uptrend, and given the maxim that “the trend is your friend,” the odds still favor a continuation higher. In the short term, the trend is unclear.

 

A break above $2,721 (Monday’s high) would be a bullish sign and give the green light to a continuation higher. The next target would be at $2,790, matching the previous record high.

Alternatively, a decisive break below the major trendline would likely lead to further losses and confirm the short-term trend as bearish. 

A decisive break would be one accompanied by a long red candlestick that broke cleanly through the trendline and closed near its low – or three red candlesticks in a row that broke below the line.