Gold price reaches two-week peak as US yields fall, geopolitical tensions rise

• Gold prices rally 1.50% on Friday, boosted by a decrease in US 10-year Treasury yields to 4.40%.
• Escalating geopolitical concerns, including potential expansion of the Russia-Ukraine conflict, fuel demand for Bullion’s safe-haven status.
• US economic data shows mixed signals; Services and Composite PMIs outperform while Manufacturing PMI remains in contraction.

Gold price rallies to a new two-week high on Friday during the North American session as US Treasury bond yields drop. Geopolitics continued to play its part, keeping the golden metal bid, while US business activity improved, capping the non-yielding metal advance. The XAU/USD trades at $2,710, gaining 1.50%.

The yellow metal surged due to a slight fall in US Treasury yields. The US 10-year T-note dipped two basis points to 4.40%, a tailwind for Bullion prices, set to print gains of more than 5% on the week.

Risks that the Russia-Ukraine war might broaden and transform into a US-Russia conflict keep Bullion prices higher. This and uncertainty about the Middle East conflict involving Israel and Lebanon may pave the way for retesting the XAU/USD all-time high at $2,790.

Data-wise, the US economic docket featured the release of S&P Global Flash PMIs for November. The Services and Composite indices expanded, exceeding estimates and October’s figures. However, the Manufacturing PMI, despite improving above forecasts and the previous month’s release, remained below the 50 line, which divides expansion/contraction territories.

Recently, the University of Michigan (UoM) revealed that Consumer Sentiment among Americans improved compared to the preliminary reading, while inflation is expected to approach the Federal Reserve’s (Fed) 2% goal in the 12 months ahead.

In the meantime, some Fed officials who crossed the wires became slightly concerned about inflation progress stalling. Even though the majority advocate for a looser policy, they acknowledge the economy remains robust; and if inflation entrenches above the 2% goal, they could pause its easing cycle.

Traders trimmed the chances for a 25 bps rate cut at the December meeting. The CME FedWatch Tool sees a 56% probability of lowering rates, down from a 58% chance two days ago.

Daily digest market movers: Gold refreshes two-week peak on geopolitical jitters

• Gold prices recovered as US real yields retreated two basis points to 2.068%.
• The US Dollar Index (DXY), which tracks the buck's performance against six currencies, gains over 0.34%, up at 107.00 near weekly highs.
• US S&P Global PMIs for November showed growth, with the Services PMI rising to 57.0 and the Composite PMI to 55.3, both surpassing the prior month. The Manufacturing PMI edged up from 48.5 to 48.8, aligning with expectations.
• The University of Michigan Consumer Sentiment Index improved from 70.5 to 71.8 in November but fell short of projections. Meanwhile, as anticipated, one-year inflation expectations eased slightly from 2.7% to 2.6%.
• According to Chicago Board of Trade data via the December fed funds futures contract, investors are pricing in a 22 basis-point rate cut by the Federal Reserve by the end of 2024.

Technical outlook: Gold price buyers, set their sight around $2,800

Gold’s rally is set to continue with prices aiming to challenge the $2,750 figure once more. On Thursday, the yellow metal crossed above the 50-day Simple Moving Average (SMA) of $2,663, prompting buyers to push XAU/USD’s spot prices higher.

In that environment, if Bullion prices clear $2,750, the all-time high at $2,790 is next. A breach of the latter will expose the $2,800 figure and pave the way to test $3,000, which Goldman Sachs sees as the next major resistance.

On the other hand, if XAU/USD tumbles below $2,700, the non-yielding metal could begin to trade range-bound within the $2,650-$2,700 range unless bears clear the November 14 swing low of $2,536, followed by $2,500.

The Relative Strength Index (RSI) has shifted to a bullish bias, indicating buyers are in charge.