In Friday’s Asian session, the gold price rebounded to around $2,690, with a 42% increase on that day. Traders are now closely watching as all eyes are set on the US Federal Reserve’s (Fed) interest rate decision which is due next week.
Supportive Factors for Gold Price
Central Bank Buying and Geopolitical Risks
One factor that could support the gold price is the buying by central banks. For instance, the People’s Bank of China (PBoC) resumed gold purchases in November after a six-month break. It increased its reserves to 72.96 million fine troy ounces. This happened as Beijing signaled a shift to an “appropriately loose” monetary policy and had plans for a more proactive fiscal approach in 2024. Goldman Sachs analysts pointed out that the PBoC “may even increase Gold demand during periods of local currency weakness to boost confidence in their currency.”
Geopolitical risks also play a role in supporting gold. The escalating tensions in the Middle East might boost the safe-haven demand for gold. Reuters reported that an Israeli strike killed at least 30 Palestinians and wounded 50 others who were sheltering in a post office in the central Gaza Strip on Thursday, bringing the death toll in the enclave to 66.
Potential Headwind for Gold Price
Fed’s Stance Amid Trump’s Tariff Policies
On the other hand, there are aspects that could act as a headwind for gold. The speculations that US President-elect Donald Trump’s tariff policies might cause inflation could make the Fed adopt a more cautious stance on cutting interest rates. As gold is a non-yielding asset, this could impact it negatively. According to CME Group’s FedWatch Tool, traders are currently pricing in a nearly 96.4% chance that the Fed will reduce its rate by 25 basis points (bps) at the December meeting.
Also, the cautious stance of the Fed due to Trump’s tariff policies might put pressure on the USD-denominated gold. The gold price (XAU/USD) had recovered some ground to around $2,690 during the Asian trading hours on Friday after retreating from a five-week high in the previous session.
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