Gold surges amid geopolitical tesions, closes week in the red

Gold gains 0.67% in late session, but geopolitical strife keeps it above $2,600 despite monthly losses.
Escalation in Russia-Ukraine conflict and Middle East tensions underline Gold's safe-haven appeal.
Market optimism grows for a 25 bps Fed rate cut in December, bolstering Bullion’s short-term prospects.

Gold's price advanced late during the North American session on Friday, up by 0.67%, yet it remains set to print monthly losses of over 3%. Geopolitical risks continue to drive price action with the non-yielding metal fluctuating at around $2,600. The XAU/USD trades at $2,652 after hitting a daily low of $2,634.

Geopolitical tensions eased in the Middle East after Israel and Lebanon agreed to a ceasefire. Nevertheless, both countries accused each other of violating the agreement.

Recently, Sky News Arabia revealed that the Israeli Army announced the bombing of a mobile rocket platform belonging to Hezbollah in southern Lebanon in an air strike.

Gold prices could remain bid after the escalation of the Russia-Ukraine conflict. During the week, Russia attacked Ukraine’s energy infrastructure and threatened to attack with ballistic missiles. Russia’s response is a retaliation to the US and UK authorizing the deployment of missiles manufactured in both countries inside Russia.

In November, Bullion prices were hampered by US President-elect Donald Trump's victory on November 5. Some of his proposals are inflation-prone, like imposing tariffs and cutting taxes.

This bolstered the Greenback, which is set to end November with gains of over 2%, according to the US Dollar Index (DXY). Speculation that the new US administration's fiscal policy is expansionary might prevent the Federal Reserve (Fed) from continuing to lower interest rates.

The choice of Scott Bessent as Treasury Secretary for the upcoming Trump administration calmed the markets and bolstered Gold prices last week. Investors see Bessent as market-friendly, which could moderate harsh Trump trade policies.

Consequently, market participants are optimistic that the Fed will cut rates by 25 basis points at the December meeting. According to the CME FedWatch Tool, the swaps market sees a probability of 66% of such a decision.

Daily digest market movers: Gold price underpinned by lower US real yields

Gold prices recovered as US real yields dropped seven basis points to 1.92%.
The US 10-year Treasury bond yield falls six basis points to 4.182%.
The US Dollar Index (DXY), which tracks the performance of the buck against six currencies, edged down 0.37% at 105.75 on the day. However, it is set to print gains of over 1.79% for the month.
The latest US GDP figures and the Core Personal Consumption Expenditures (PCE) Price Index hint that the US economy remains robust and that easing policy could need to be paused.
However, Fed officials seemed convinced that further easing is needed and may cut rates at the December meeting. However, they adopted a more cautious stance, opening the door to pause the easing cycle.
Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.

Technical outlook: Gold price climbs but remains below 50-day SMA

Gold prices remain upwardly biased yet contained within the 50 and 100-day Simple Moving Averages (SMAs), each at $2,668 and $2,572, respectively. Buyers need to clear the 50-day SMA so they can test $2,700. On further strength, XAU/USD's next resistance level would be the psychological $2,750 and the all-time high at $2,790.

On the other hand, if sellers drag the non-yielding metal below $2,600, they could target the 100-day SMA, ahead of the November 14 swing low of $2,536.

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.

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