Gold prices rose during trading on Friday, but remain heading towards a weekly decline due to the recovery of the US dollar and the rise in Treasury yields. This decline comes as investors await the speech of the Federal Reserve Chairman, Jerome Powell, which is expected to shed light on the future plans of the central bank regarding interest rate cuts. The senior market analyst noted that “the temporary decline in gold below the $2,500 level may be temporary, as fundamentals continue to support the precious metal.”
After reaching an all-time high of $2,531.60 on Tuesday, gold has witnessed a decline of about 1% during this week. This decline was due to the rise in the US dollar index and the rise in the US 10-year Treasury yields. Jerome Powell, the Chairman of the Federal Reserve, is expected to make important statements during the annual conference of central banks in Jackson Hole, Wyoming, which will be held at 17:00.
On Thursday, Federal Reserve policymakers backed the proposal to cut interest rates starting next month, given falling inflation and a slowing labor market. However, one cautioned against taking any hasty steps towards monetary policy easing. According to the US Rate Watch tool available on Investing Saudi Arabia, traders have fully priced in the Fed’s easing next month, with a 76% chance of a 25 basis point cut. A low interest rate environment typically boosts the appeal of non-yielding gold.
In this context, a senior Mumbai-based economist expected gold to retreat to the $2,470-2,475 range after its strong rally. He noted that this decline could provide a fresh entry opportunity. He added that if geopolitical tensions escalate, gold could break the resistance level at $2,524, which could push it to levels as high as $2,580.
Gold futures rose during the Asian session on Friday.
Gold, Silver, Copper Trading Slightly Higher, Support and Resistance Analysis: According to the Comex classification of the New York Mercantile Exchange, December gold futures were trading at $2,530.25 per ounce, up 0.54%. The contracts previously recorded a high of $2,531.25 per ounce. Gold may find support at $2,506.45 and resistance at $2,570.40. In contrast, the dollar index, which measures the performance of the greenback against a basket of six other major currencies, fell 0.18% to trade at $101.22. China boosts its gold reserves as prices hit record highs: The price of gold has risen 12% this year, and continues to trade near record levels. The metal has been supported by strong central bank purchases, strong appetite in China, and safe-haven demand. The dollar fell by the most since December yesterday, which also supported the metal. Spot gold settled at $2,304.18 an ounce and the Bloomberg Spot Dollar Index fell after falling 0.7% yesterday. Silver, platinum and palladium were higher.
Gold prices fell for a second straight session under pressure from a stronger US dollar, higher bond yields and profit-taking by investors. At the close of trading on Thursday, December gold futures fell 1.2%, or $30.8, to $2,516.7 an ounce.
Gold and the dollar at the moment: Spot gold rose slightly by 0.3% to $2,491.35 an ounce. In contrast, US gold futures rose 0.4% to $2,526.80 an ounce. Meanwhile, the dollar index fell 0.23% to 101.16 points. Other metals price developments: Spot silver rose about 1% to $29.22 an ounce, and is now up 0.8% on the week. Platinum rose 1.1% to $953.55 an ounce, while palladium was steady at $932.48 an ounce. Both metals are on track for weekly declines, however.
US jobs outlook and gold standard
US jobs outlook: The nonfarm payrolls report may show a slower pace of growth, which could help bolster bets on interest rate cuts. Low interest rates are generally positive for the non-interest-bearing metal.
The advantages of the gold standard, according to the Encyclopædia Britannica, are that it reduces the ability of governments or banks to cause inflation by over-issuing paper money, and it creates stability in international trade by providing a stable pattern of exchange rates. Its disadvantages include that it does not provide sufficient flexibility in the supply of money, because newly mined gold is not closely linked to the growing needs of the international economy for its equivalent money, and some countries may not be able to isolate their economies from recessions or inflation. Although gold no longer plays a direct role in the international monetary system, central banks and governments around the world seek to hold large quantities of it as a hedge against economic instability, as gold’s performance is less volatile than that of individual commodities, stocks and currencies.
Gold is a good savings asset for businesses and individuals alike during conflicts. In the event that those living in conflict zones are forced to leave them, gold is distinguished from many currencies and commodities by its high price and ease of carrying. It is also considered an international currency that can be sold anywhere in the world without the risk of fluctuations that paper currencies face. In addition, gold is of great importance to countries in times of war and conflict. According to a British newspaper, Russia had gold worth more than the value of its US dollar reserves in June 2020, as gold bullion accounted for 23 percent of Russia’s total reserves.
