Gold falls near $4,000 as strong US GDP fuels Fed hike outlook

Gold drops over 1% to $4,019, breaking a three-day winning streak.
US GDP accelerates to 3.4% in Q3, while Core PCE inflation reaches 3.1% in September.
December Fed hike odds remain elevated at 81% despite recent repricing.

Gold (XAU/USD) dives over 1% on Thursday after a tranche of US economic data cemented the case for another rate hike by the Federal Reserve (Fed) at the December 9 meeting. At the time of writing, XAU/USD trades at $4,019 after reaching a high of $4,069.

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XAU/USD tumbles as resilient growth and elevated inflation reinforce December tightening expectations

The Greenback is extending its losses, with the US Dollar Index (DXY), which tracks the buck's performance against six peers, down 0.18% at 101.96. This was sparked by the Federal Reserve’s decision to hold rates unchanged and by the lack of forward guidance from Fed Chair Kevin Warsh on Wednesday.

Following the decision, money markets priced in an 84% chance of a 25-basis-point rate hike. Since then, they trimmed the odds to 81%, according to Prime Terminal.

Gold prices pushed up to $4,035 before making a U-turn to current levels on the release of US data. Gross Domestic Product (GDP) in Q3 rose 3.4% YoY, above forecasts of 3.2% and up from 2.2% in the previous quarter. Also, the Fed’s preferred gauge of inflation, the Core Personal Consumption Expenditures (PCE) Price Index, rose to 3.1% YoY as expected, signaling the Fed has work to do on its price stability mandate.

After economic growth and inflation data, the jobs market is faring well, with Initial Jobless Claims for the week ending October 24 cooling from 195K to 194K, below forecasts of 199K.

Tensions in the Middle East eased after US Vice President JD Vance sought to revive peace negotiations by writing to Mohsen Rezaei, head of Iran's Supreme National Security Council. Even though Oil prices drifted lower, bullion has failed to recover amid expectations of higher interest rates.

The US 10-year Treasury yield is flat at 4.999%, after reaching a low of 4.949%. This, along with uncertainty about the outcome of the November 3 US midterm elections, keeps Gold prices steady.

Next week, the docket will feature the ISM Manufacturing and Services PMI, Factory Orders, the JOLTS survey, Initial Jobless Claims and October’s Nonfarm Payrolls data.

XAU/USD technical outlook: Drops towards $4,000 as sellers eye YTD low beneath $3,970

Gold price shows sellers are dominating the action as XAU/USD falls below Wednesday's daily low of $4,025, poised to test last week’s low of $3,975 if Gold dives below $4,000. Momentum favors further downside as the Relative Strength Index (RSI) edges lower towards oversold territory.

On the other hand, buyers can reclaim some control if Gold clears the $4,100 mark. Once done, the next stop is $4,200, followed by the 100-day and the 50-day Simple Moving Averages (SMAs) at $4,217 and $4,269, respectively.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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