Gold trades near $4,100 as focus turns to US inflation and Fed speeches

Gold opens the week higher as the US Dollar gives back some of its post-NFP gains.
US inflation data and Fed speeches could shift expectations for the December rate decision.
XAU/USD shows improving bullish momentum, with the 21-day SMA offering immediate support.

Gold (XAU/USD) opens the week on a positive note as the US Dollar (USD) gives back some of the gains sparked by the upbeat US jobs report released on Friday. The metal, however, struggles to secure a decisive break above $4,100, with attention turning to this week’s US inflation data. At the time of writing, XAU/USD trades around $4,102, up 0.90% on the day after reaching an intraday high of $4,134.

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The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101.84, down from Friday’s high of 102.36.

US Nonfarm Payrolls (NFP) rose by 165K in October, more than double the 65K forecast, while September’s gain was revised up to 60K from 29K. The Unemployment Rate fell to 4.1% from 4.2%.

The figures suggest the labour market is holding up, giving the Federal Reserve (Fed) room to raise interest rates further to bring inflation back to its 2% target. Higher energy costs linked to the Middle East conflict leave inflation risks tilted to the upside.

However, oil prices have eased from recent highs after Democrats’ victory in the US midterm elections raised hopes that Congress would press President Donald Trump to end the war with Iran. In a CBS News interview that aired Sunday, Trump said there was “no reason” to escalate the conflict. Trump is also expected to meet Qatar’s prime minister at the White House on Monday. Qatar has been mediating indirect talks between Washington and Tehran.

The US Consumer Price Index (CPI) is due on Tuesday, followed by the Producer Price Index (PPI) on Friday. Both reports could shift expectations for the Fed’s final policy decision of the year. Traders are pricing in an 80% chance of a December rate hike, according to the CME FedWatch Tool.

Analysts at Commerzbank Research note that the Federal Reserve’s September projections already leaned decisively toward further tightening, pointing out that “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year.” They add that the economic releases since then, including strong October payrolls and still-elevated inflation, are “unlikely to have changed that assessment materially.”

The hawkish Fed outlook remains a headwind for Gold, as higher interest rates raise the opportunity cost of holding the non-yielding metal. Alongside the inflation data, traders will watch a busy slate of Fed speeches this week for clues on how policymakers are leaning ahead of the December meeting.

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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