Gold prices were not affected by the political turmoil in France or South Korea on Thursday, as demand for safe-haven assets remained low.
Experts say that the recent rise of the dollar and the increased risk appetite of investors has weighed on the progress made by the yellow metal.
David Morrison is a senior market analyst with Trade Nation. He said: “Gold bulls were shaken by a number of recent events. The first was the prolonged slump that followed Trump’s victory in the election early November.”
Since Trump’s election, Wall Street major averages are up sharply. This has undermined gold’s appeal to investors as a safe haven.
Early November saw gold prices as low as $2.530 per ounce. However, they recovered to above $2.700 over the next few weeks.
A second sell-off, in the last weeks of November, pushed prices down to $2,660 an ounce.
Morrison:
Gold’s ability to stay above $2,600 was encouraging. The upside has been slow so far.
Also, comments by US Federal Reserve chair Jerome Powell about a cautious monetary policy ease also affected sentiment.
The February gold contract at COMEX closed on Tuesday, January 29, 2012, at $2,674.75 an ounce. This is just 0.1% lower than the previous close.
Gold must consolidate to continue its upward trend
Morrison said that “would-be purchasers” of gold are cautious right now, as they are wary about another sharp drop in price.
Gold may need to continue consolidating and show its resilience to downside pressure before it can restore confidence.
The gold market has had a muted start to the month of December, with prices falling by almost $7 per ounce from Friday’s last trading session in November.
The market was cautious ahead of the important economic data that will be released in the US this week.
US Fed interest rate decisions could be influenced by the US Fed non-farm payrolls and unemployment benefits data.
Powell’s economic data and comments
The ADP Employment Report released on Thursday showed that the private sector added 146,000 new jobs in the US in November.
This is a significant decline compared to the 233,000 new jobs created in the previous month. It also falls short of MarketWatch’s consensus estimate of 163,000.
The US nonfarm payrolls report on Friday will likely provide additional clues about the health of the labor market.
Fed Chair Powell said on Wednesday that the current economy is stronger than what the central bank projected in September. He also said that future rate reductions must be done with caution.
Powell spoke at an event hosted by the New York Times:
The U.S. is doing very well and it’s not clear why that won’t continue. There are fewer downside risks in the labor markets, growth has been stronger than expected, and inflation is a bit higher.
According to CME FedWatch, traders, despite the hawkish tone of the Fed, have priced in a probability of 73.8% that the Fed will cut interest rates by 25 basis point later this month.
Gary Wagner, Kitco.com’s technical market analyst, stated in a recent report that the short-term outlook for gold remains cautious.
Limited inflows of safe havens despite political turmoil
Gold prices were mostly muted Thursday, despite the collapse of France’s government. Meanwhile, calls to impeach South Korea’s president Yoon-Suk-Yeol increased.
The broader equity markets gained despite the fact that the stock exchanges in France and South Korea declined.
Wall Street indexes reached record highs Wednesday, thanks to the strength of technology shares.
Silver futures fell 0.5% to $31.765 an ounce. Platinum futures remained largely unchanged.
The three-month contract for copper on the London Metal Exchange rose by 0.2% to $9,124 a ton.
The post Gold must show resilience against downward pressure to sustain upside potential can be updated as new information unfolds
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