- Gold price gains some positive traction for the third straight day and climbs to a one-week high on Wednesday.
- The USD languishes near its lowest level in more than two months amid bets that the Fed is done raising rates.
- The prevalent risk-on mood might hold back bulls from placing fresh bets and cap the upside for the XAU/USD.
Gold price (XAU/USD) scales higher for the third successive day on Wednesday and touches a fresh weekly high, around the $1,971 region during the early part of the European session. The momentum remains well supported by the prevalent US Dollar (USD) selling bias, fueled by firming expectations that the Federal Reserve (Fed) is done raising interest rates, which, in turn, is seen benefitting the non-yielding yellow metal.
That said, the prevalent risk-on environment, bolstered by dovish Fed expectations and a massive liquidity injection by China’s central bank, could act as a headwind for the safe-haven Gold price and cap any further gains. Moreover, signs that tensions in the Middle East could be easing warrant caution before positioning for an extension of this week's recovery from the lowest level since October 18, around the $1,930 area touched on Monday.
Daily Digest Market Movers: Gold price remains supported by expectations that the Fed will not raise rates again
- The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline CPI was unchanged in October, while the yearly rate registered its smallest rise in two years and decelerated to 3.2% from 3.7% in September.
- The data reaffirms expectations that the Federal Reserve (Fed) has ended its policy tightening cycle and lifts bets for a rate cut in May 2024, which, in turn, triggered the overnight steep decline in the US Treasury bond yields.
- The yield on the benchmark 10-year US government bond languishes near a two-month low, keeping the US Dollar depressed near its lowest level since September 1 and lending some support to the non-yielding Gold price.
- The prevalent risk-on mood is seen acting as a headwind for the safe-haven precious metal, though the fundamental backdrop favours bullish traders and suggests that the path of least resistance remains to the upside.
- Dovish Fed expectations, along with a 600 billion Yuan liquidity injection by the People’s Bank of China, aimed at shoring up sluggish economic growth and encouraging more lending in the country, boosts investors' confidence.
- China's Industrial Production grew by 4.6% YoY in October, better than the 4.5% rise in the previous month and consensus estimates, and the monthly Retail Sales advanced more than expected, by 7.4% over the past 12 months.
- China's Fixed Asset Investment climbed by 2.9% YoY during the reported month as compared to the 3.1% anticipated and September reading. The data does little to influence the market sentiment or provide any impetus.
- Market participants now look to the release of the US Producer Price Index (PPI) and monthly Retail Sales figures for short-term opportunities later during the early North American session this Wednesday.
- The headline US PPI is anticipated to have risen by 0.1% in October, down from 0.5% in the previous month, and the yearly rate is seen falling below the 2.0% mark, though the core PPI is expected to match September's readings.
- The US Retail Sales possibly contracted by 0.3% in October, down sharply from the 0.7% rise registered in the previous month, while sales excluding automobiles are expected to remain flat MoM.
Technical Analysis: Gold price touches a fresh weekly top; seems poised to extend its appreciating move
From a technical perspective, any subsequent move beyond the overnight swing high, around the $1,970-1,971 area, is likely to confront some resistance near the $1,980 region. Some follow-through buying has the potential to lift the Gold price towards the $1,991-1,992 hurdle en route to the $2,000 psychological mark and a multi-month peak, around the $2,009-2,010 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.
On the flip side, a corrective pullback might now attract some buyers and remain limited near the $1,950-1,949 area. This is followed by a cluster of supports near the 200-day SMA, currently pegged around the $1,935 region, and the 100- and the 50-day SMAs confluence near the $1,928-1,925 zone. Failure to defend the said support levels would make the Gold price vulnerable to accelerate the fall towards the $1,900 round figure.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.76% | -2.14% | -0.80% | -2.10% | -0.59% | -2.06% | -1.48% | |
| EUR | 1.72% | -0.38% | 0.94% | -0.33% | 1.14% | -0.30% | 0.27% | |
| GBP | 2.09% | 0.38% | 1.31% | 0.05% | 1.51% | 0.08% | 0.64% | |
| CAD | 0.79% | -0.96% | -1.34% | -1.27% | 0.21% | -1.24% | -0.68% | |
| AUD | 2.05% | 0.32% | -0.06% | 1.26% | 1.45% | 0.02% | 0.58% | |
| JPY | 0.58% | -1.16% | -1.54% | -0.21% | -1.48% | -1.47% | -0.89% | |
| NZD | 2.01% | 0.29% | -0.09% | 1.22% | -0.04% | 1.43% | 0.56% | |
| CHF | 1.46% | -0.27% | -0.65% | 0.66% | -0.61% | 0.87% | -0.57% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
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.
What are the key assets to track to understand risk sentiment dynamics?
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.
Which currencies strengthen when sentiment is "risk-on"?
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.
Which currencies strengthen when sentiment is "risk-off"?
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.