Gold prices have started the new week on a positive note as geopolitical turmoil and falling yields for US Treasury bills continue to drive the yellow metal upwards.
Bets on the Federal Reserve (Fed), which is expected to lower borrowing costs in December, have caused US Treasury bond yields to drop to their lowest levels since October.
The February gold contract at COMEX is now $2,671.76 an ounce. This is up 0.5% compared to the previous close.
Gold prices could rise in the near future due to the continued tensions in South Korea, the Middle East and other countries.
Geopolitical tensions
Gold has become a safe-haven after the rebels took over Syria’s capital Damascus and ousted President Bashar al-Assad.
He fled to Russia.
A Reuters report stated that the rebel forces are partially backed and have ties with the Sunni Islamic sect. This puts them at odds against Iran.
As reports claim that Israel has entered Syrian territory, tensions could increase further in the region.
In South Korea, prosecutors have named Yoonsuk Yeol as the subject of a criminal probe over an unsuccessful attempt to impose martial laws in the country.
Yeol has survived an impeachment motion over the weekend.
The leader of Yeol’s own party also said that the president will be forced to resign.
Haresh Meghani, FXstreet’s editor, stated in a recent report:
Gold bulls will see a follow-through purchase beyond the $2672 barrier as a critical trigger. This will allow Gold to reclaim its $2700 round figure.
He added that “the momentum could extend even further towards the next significant hurdle around the $2,722 region.”
Bets on Interest Rate Cuts
The expectation that the Fed will cut rates again by the end of the year could also support the gold price.
The resilient US economy, coupled with a relatively stronger labour force, had boosted expectations for a December rate cut. The central bank is expected to ease monetary policy in December, but traders are still expecting it.
CME FedWatch shows that traders still price in an 85.1% chance of the Fed reducing rates by 25 basis point at their meeting on the 17th and 18th.
The US Bureau of Labor Statistics reported on Friday that the nonfarm payrolls had increased by 227,000, which was higher than expected at 200,000.
The unemployment rate in America increased to 4.2% in November from 4.1% in October.
The Fed is expected to cut interest rates later in the month. Gold is more attractive to investors when interest rates are lower, as it’s a non-yielding investment unlike bonds.
Fed has cut rates 75 bps total this year, including a 50 bps reduction in September and a 25-bps decrease last month.
ETF Outflows in November
The World Gold Council (WGC) reports that gold exchange-traded fund outflows occurred last month for the first since April.
WGC reported in its November report that outflows totaled 28,6 tons.
The majority of the 26 tons was in ETFs listed on European stock exchanges.
The UK and Germany registered the largest outflows.
WGC attributes the outflows on weaker economic data and concerns over proposed trade tariffs from US President-elect Donald Trump. They also attribute it to uncertainty regarding the direction of central banks and greater risk-on attitudes.
Carsten Fritsch said, “However, we believe that the first three factors listed above could have just as easily been in favor of ETF inflows,” in a report.
He added that “in the US there were outflows during the first half November followed by inflows during the second half, so the monthly change is negligible.”
Commerzbank reported that outflows from the largest ETF in the world were offset by inflows to another ETF.
Fritsch said:
Donald Trump’s election has therefore not had a negative impact on ETFs in the US.
The ETF changes of November coincide with a sharp drop in the price for yellow metal.
The gold price dropped sharply last month. It was the biggest monthly drop in over a year. This price decline occurred primarily in the first part of the month.
This post Gold Price Outlook: Can safe haven demand push prices above $2700? This post may be updated as new information unfolds
