Gold steadies as safe-haven demand increases
Gold sees renewed safe haven interest as investors become more risk-averse, but several hurdles remain ahead
Gold is attempting to regain its footing this week as a wave of risk aversion has drawn investors back into safe-haven assets. However, the momentum remains limited as some of the drivers behind the recent exuberance in gold have started to fade. Primarily, the Federal Reserve’s hawkish tone at its meeting last week led to a shift in market positioning, removing some of the expectations of future rate cuts, which weighed on precious metals.
The bullish momentum had become heavily overextended into mid-October, with the technicals suggesting some frenzy buying. This led to a strong correction, sending XAU/USD back below $4,000 after having posted its best weekly performance on record in the weeks prior. The long-term support remains strong, mostly driven by continued central bank buying and expectations of lower rates in the future, but the short-term is driven by speculative trading, which has increased the volatility.
Gold (XAU/USD) daily chart
Past performance is not a reliable indicator of future results.
As of now, gold seems to be facing a period of consolidation as traders test the appetite to move above $4,000 once again, with the momentum already having been rejected once this week. The increase in risk-aversion in equity markets may offer some support for precious metals but the upside seems limited as a stronger U.S. dollar and a rebound in Treasury yields have weigh on the metal, reducing its appeal relative to income-bearing assets.
Looking ahead, with the macro‐data gap continuing in the US, how central bankers speak and what they signal has become more important. If the Fed’s tone remains in favour of keeping rates on hold in December, gold may weaken further. It is also important to keep a close eye on the dollar, as it slowly regains ground, limiting the upside in dollar-denominated assets like XAU/USD, making them less attractive.