After three weeks of post-election sell-off, the gold market stabilised this week and posted its biggest weekly gain since October 2023. December gold futures contract closed at $2,712 an ounce on Friday (22 November), up 5.4 per cent this week.
The rise in gold prices was largely driven by renewed safe-haven demand following the escalation of the war in Ukraine. The U.S. recently allowed Ukraine to fire U.S.-made missiles at Russia, sparking fears of an escalation of the Russia-Ukraine war.
Ole Hansen, head of commodities strategy at Saxo Bank, said that the rapid rebound in gold prices on Friday amid a stronger US dollar suggests that sentiment to go long on gold is high, which will be crucial for the next move in gold prices. Moreover, much of the selling pressure over the past few weeks has come from profit-taking by speculators, with little evidence of aggressive short-selling in the market.
Naeem Aslam, chief investment officer at Zaye Capital Market, said that as gold has rallied along with the dollar and equity markets, we are more confident about its performance in the next few weeks.
Lukman Otunuga, manager of market analysis at FXTM, believes that gold still has room to move higher in the current environment. While geopolitical tensions escalate, gold continues to benefit from the dovish sentiment of the Federal Reserve, with the market now seeing about a 50 per cent chance of a rate cut next month. He pointed out that gold is currently trading at less than 4 per cent of its all-time highs, and if geopolitical tensions trigger a wave of risk aversion, gold could retest its all-time highs.
In addition, the upcoming U.S. PCE report and other U.S. data in the coming week could also affect the outlook for the precious metal. Gold bulls could gain fresh momentum if weak U.S. data support a December rate cut by the Federal Reserve.
From a technical perspective, gold needs to close solidly above the psychological $2,700 mark to pave the way for $2,750 and $2,790, Otunuga said. A sustained weakness below $2,700 could trigger sell-off towards the 50-day averages at $2,660 and $2,620. Next week’s economic data has the potential to inject volatility into the market.
Some economists believe that any weakness in consumer confidence or a disappointing revision to third-quarter gross domestic product could cement expectations for a rate cut. Meanwhile, weak inflation data in the core Personal Consumption Expenditure (PCE) index could further support the Fed’s easing cycle, pushing gold prices higher.
Some analysts noted that the performance of euro-denominated gold this week revealed the true potential of the precious metal. At the end of the week, the price of gold in euros was above €2,600 per ounce, a gain of 7 per cent.
Jesse Colombo, an independent precious metals analyst, pointed out that most investors expect the US economy to avoid a recession under Trump’s “America First” agenda, but the reality may be that the new US administration may pressure the Federal Reserve to keep interest rates at ultra-low levels in order to boost asset prices while increasing spending to make the economy appear to be booming. The result of this would be a possible resurgence of inflation and a possible exacerbation of the government debt crisis, which, combined with low interest rates, creates a very favourable environment for gold to rise.
Colombo believes that more investors are aware of these issues, and gold prices are by no means rising today simply because of safe-haven demand triggered by the escalation of the Russia-Ukraine conflict.
