By Antonio Di Giacomo
Gold prices fell again on Tuesday, November 12, 2024, reaching $2,589 per ounce before recovering slightly to around $2,600. This decline reflects a correction movement in the gold market, primarily driven by rising U.S. Treasury yields and a strengthening U.S. dollar. This precious metal’s volatility has been under scrutiny due to its role as a safe-haven asset during economic uncertainty.
The rise in Treasury yields is one of the key factors behind the recent drop in gold prices. When yields increase, investors favor these instruments, as they offer a safer alternative with more attractive returns than gold, which does not generate yields. This shift leads to capital outflows from the gold market, exerting downward pressure on its price.
Another factor contributing to gold’s decline is the strengthening dollar, which has reached its highest level in the past four months. A strong dollar makes gold more expensive for holders of other currencies, reducing demand and pushing prices down. Additionally, a robust dollar often reflects renewed confidence in the U.S. economy, which also decreases demand for safe-haven assets like gold.
On Wednesday, November 13, 2024, Consumer Price Index (CPI) data will be released, which could play an important role in gold price dynamics. The CPI is crucial as it measures inflation, a relevant factor for the Federal Reserve in making interest rate decisions. If the inflation data exceeds expectations, the Fed could pause its December rate cuts, which could, in turn, affect gold prices.
In light of potential changes in Federal Reserve policy, investors remain cautious. A pause in rate cuts could make non-yielding assets like gold less attractive than instruments like bonds. Consequently, the upcoming data is highly anticipated, as it may offer insights into the future of interest rates and, thus, gold prices.
In conclusion, gold prices remain vulnerable due to global economic factors and Federal Reserve policies. Rising bond yields and the strong dollar have created an unfavorable environment for gold, reducing its appeal as a safe-haven asset. However, the upcoming CPI data could shift this situation if inflation proves higher than expected, potentially forcing the Fed to reconsider its interest rate decisions. In summary, the gold market is in a holding pattern, influenced by U.S. economic policies and the global perception of financial stability.
- Giacomo, Senior Market Analyst at XS.com
