Due to a weak US dollar and increased demand for safe havens, gold prices surged above $4,400 at the beginning of early European trading on Monday. The metal, which trades on the XAU/USD pair, surged above $4,300 as investors fled amid increased global uncertainty and anticipation of future rate cuts by the Federal Reserve.
Why Gold Prices Are Rising
The primary catalyst behind Gold’s run has been the growing conviction that US interest rates will decline in the months ahead. The latest numbers had been softer US inflation and cooler job market conditions. Gold becomes more appealing because it doesn’t pay interest, so it’s cheaper to hold than a negative-yielding bond as the cost of having a negative-yielding bond declines.
Geopolitical tensions, meanwhile, are spurring demand for safety. Investors have been wary amid continued fighting between Israel and Iran as well as renewed hostilities between the US and Venezuela. In times of uncertainty, Gold is perceived as a safe haven and therefore remains a strong buy.
Even with the rally, trading volumes are likely to remain low. Many traders are poised to take profits ahead of a long holiday period, which may further reduce short-term gains. Recent economic data may also have been a factor.
Key Market Data and Price Levels
The University of Michigan Consumer Sentiment Index widened downward to 52.9 in December, below the consensus of 53.4. Bloomberg reported that, meanwhile, Cleveland Fed President Beth Hammack said policy is “well set up to be on pause following 75 basis points of rate cuts.
Markets are now pricing in just a 21% chance of a rate cut at the next Fed meeting, according to the CME FedWatch Tool.
Technically, Gold remains bullish. Immediate resistance stands at 4,381. A clean break above this level could clear the way for a move toward 4,400. If pressure comes in, support is then found near 4,337, followed by 4,307 and 4,253.
