Gold Price Forecast: Lower interest rates environment is bullish for XAU/USD – SocGen

Gold gained 6.4% in November with the weakening US Dollar and declining yields. A lower interest rates environment supported the yellow metal, economists at Société Générale report.

A cheaper USD is bullish for Gold

“With 261K Nonfarm jobs added to the US economy, beating the consensus estimate of 193K, this is expected to ease pressure on the Fed to continue further interest rate tightening. A lower interest rates environment is bullish for the bullion since the latter is a non-yielding asset.”

“The US 10y real yield decreased 29.6 bps in November. Gold was further supported later in the month with the release of YoY US CPI figures for October. These were lower than the market had previously anticipated. Although lower inflation would traditionally be bearish for Gold, market sentiment seems to have focused on the prospect of slower interest rate hikes by the Fed or of an earlier pivot towards dovish policies which, if tamed faster than inflation decreases, would further lower real rates.”

“Gold was supported throughout the month by a weakening USD in a lower nominal rates environment, with the DXY down 5.0% in the month. A cheaper USD is bullish for the metal since it makes it relatively cheaper to foreign buyers.”