Gold prices started a new week with gains as geopolitical tensions and sliding yields on US Treasury bills maintain the upside momentum in the yellow metal.
The US Treasury bond yields dropped to their lowest level since October amid bets that the Federal Reserve (Fed) will lower borrowing costs again in December.
At the time of writing, the February gold contract on COMEX was $2,671.76 per ounce, up 0.5% from the previous close.
With the ongoing tensions in South Korea and the Middle East, safe-haven demand for gold could spur a rally in prices and propel the metal towards $2,700 per ounce in the coming sessions.
Geopolitical tensions
Safe-haven demand for gold increased after rebel forces took over Syria’s capital Damascus, and ousted President Bashar-al-Assad.
He fled to Russia.
According to a Reuters report, the rebel forces were partially backed by Turkey, and hold ties to the Sunni Islamic sect, putting them at odds with Iran.
The increased tensions in the region could escalate further as reports claimed Israel has also entered Syrian territory.
Meanwhile, in South Korea, prosecutors named Yoon Suk Yeol in a criminal investigation over a failed attempt to impose martial law in the country.
Yeol survived an impeachment vote over the weekend.
Additionally, the leader of Yeol’s own party said the president would be forced to step down.
Haresh Menghani, editor at FXstreet, said in a report:
Some follow-through buying beyond the $2,672 hurdle will be seen as a key trigger for bulls and allow the Gold price to aim to reclaim the $2,700 round figure.
“The momentum could extend further towards the next relevant hurdle near the $2,722 area,” he added.
Bets on interest rate cuts
Another factor that could support gold prices is the expectations of the Fed cutting rates once again before the end of this year.
A resilient US economy and relatively stronger labour market had hit sentiments for a rate cut in December. However, traders still expect the central bank to ease its monetary policy this month.
According to the CME FedWatch tool, traders are still pricing in a 85.1% probability of the Fed cutting rates by 25 basis points at its meeting on December 17 and 18.
In terms of key data, the US Bureau of Labor Statistics on Friday reported that nonfarm payrolls increased by 227,000 in November, which was above expectations of a 200,000 increase.
Also, the unemployment rate in the US moved up at 4.2% during last month from 4.1% in October.
This lifted bets on an interest rate cut by the Fed later this month. Lower interest rates benefit gold as it is a non-yielding asset unlike bonds.
The Fed had cut rates by a total of 75 bps this year so far, with a 50 bps cut in September, followed by a 25 bps cut last month.
ETF outflows in November
According to the World Gold Council (WGC), for the first time since April, gold exchange-traded funds experienced outflows last month.
Outflows amounted to 28.6 tons in November, WGC said in its report.
The vast majority, namely 26 tons, occurred in ETFs listed in Europe.
The strongest outflows were registered in Germany and the UK.
The WGC attributed the outflows to weaker economic data, concerns about proposed trade tariffs by US President-elect Donald Trump, uncertainty about the path of central banks, greater risk-on sentiments and weakness in euro and pound against the dollar.
“However, in our opinion, the first three factors mentioned above could just as easily have been in favour of ETF inflows,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
“In the US, there were outflows in the first half of November, followed by inflows in the second half of the month, so that the monthly change was negligible,” he added.
Commerzbank said that the world’s largest ETF experienced outflows, which was offset by inflows into another ETF.
Fritsch said:
The election victory of Donald Trump therefore had no serious negative impact on ETF demand in the US.
The ETF changes in November correspond with a sharp decline in the price of the yellow metal.
Last month, the gold price recorded its sharpest monthly decline in more than a year, with the price weakness occurring mainly in the first half of the month.
The post Gold price outlook: can safe haven demand drive prices above $2700? appeared first on Invezz
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