Investors Bullish as Gold Rides on Weaker US Dollar and Lower Treasury Yields
In a resounding move during early Asian trading hours on Tuesday, the price of gold (XAU/USD) has soared to a six-month high, breaching the crucial $2,000 level. The rally is attributed to the weakening US Dollar (USD) and a decline in US Treasury bond yields. Currently hovering around $2,015, gold maintains its upward trajectory despite a marginal 0.01% dip on the day.
The US Dollar Index (DXY) witnessed a slide to its lowest point since late August, settling around 103.20. This decline has significantly contributed to the strength of the USD-denominated gold. Concurrently, US Treasury yields have edged lower, with the 10-year yield dropping from 4.51% to 4.39%.
Analysts suggest that the softer US data has played a pivotal role in dragging down the Greenback. Monday’s report from the US Census Bureau revealed a 5.6% month-on-month decline in October’s New Home Sales, falling short of the market consensus of 725K at 679K. Additionally, the Dallas Fed Manufacturing Index for November dropped to -19.9 from the previous reading of -19.2.
The prospect of lower inflation in the US has added to the downward pressure on the USD, intensifying investor appetite for commodities. Recent US PMI data indicated a slower growth pace in the private sector, prompting speculation that the Federal Reserve (Fed) might cut interest rates in the middle of the coming year.
Looking ahead, China’s release of the NBS Purchasing Managers Index (PMI) data on Thursday is anticipated to influence gold prices. With expectations of improved Manufacturing and Services PMI figures at 49.6 and 51.1, respectively, a weaker-than-expected result could exert selling pressure on gold. China, as the world’s largest gold producer and consumer, holds a significant sway over the precious metal market.
As the week unfolds, gold traders will closely monitor key US economic indicators, including the Housing Price Index, S&P/Case-Shiller Home Price Indices, CB Consumer Confidence, and the Richmond Fed Manufacturing Index on Tuesday. Attention will shift towards the highly awaited US Gross Domestic Product (GDP) release on Wednesday and the Personal Consumption Expenditure (PCE) inflation figures on Thursday. The stage is set for a dynamic week in the gold market, with investors keeping a keen eye on economic developments shaping the precious metal’s future trajectory.