Gold recovers but ends lower on a weekly basis

Spot gold extended its recovery for a fourth straight day on Friday as it rose 0.35% to close at $2650, helped by geopolitical tensions and a weaker dollar. However, the metal, despite the recovery, could not shake the weekly losses and was down around 2.3% for the week. A sell-off on Nov. 25, following President-elect Trump’s announcement of Scott Bessant as the incoming Treasury secretary, turned out to be too deep to recover in the week.

In the week ended November 29, gold traded in a range of $2605 (November 26) and $2721 (November 25).

Geopolitics

In response to continued Ukrainian attacks on Russia with ATACMS missiles, Russia attacked Kiev’s power infrastructure with missiles and drones on November 29 and warned that it could use nuclear-capable ballistic missiles to attack decision centers in Kiev.

Talks of arming western Ukraine with nuclear weapons are worsening the geopolitical situation; Thus, the possibility of Russia’s use of strategic nuclear weapons is increasing, although the US doubts that Russia will take such drastic measures.

Meanwhile, Israel attacked its targets in southern Lebanon, accusing Hezbollah of violating the ceasefire agreement.

High geopolitical tensions dominate the gold trade.

Data roundup

Euro-zone CPI rose 2.3% year-on-year, up from 2% in October, and in line with forecasts. The rise in inflation was driven by energy base effects and elevated service costs.

Canadian economy grew 0.1% in October, beating forecasts of 0.1%; However, it beat estimates of 0.3% growth. 3Q GDP was below estimates of 1% annualized growth of 1.1%.

France’s GDP (3Q final) grew 1.2% year-on-year, behind forecasts of 1.3%.

India’s GDP grew 5.4% in the three months to September from a year earlier, the worst reading since Q4 of 2022; That was lower than the central bank’s estimate of 7% for the period.

US CPI data (October) was in line with forecasts, although some readings showed a pick-up in inflation due to a jump in core services inflation. The PCE price index was up 2.8% year-on-year (prior reading 2.70%) and the PCE price index rose 2.3% yoy in September from 2.1%. Real consumer spending (October) trailed forecast by 0.2% at 0.1%; However, September’s reading was further revised up. Annual GDP growth in the third quarter matched forecasts of 2.8%. Consecutive claims were at a 3-year high.

Germany’s CPI (pre-November) came in at 2.2% yoy (2.3% forecast) and -0.2% mom (forecast -0.7%), while Euro-zone consumer confidence at 5.3 (November final) was behind forecasts of 6.5.

Next data

Next week is packed with critical data as US ISM manufacturing, ISM services and nonfarm payroll data are on the cards. There will also be a focus on PMIs from economies such as Japan, China, the Eurozone and the UK. Data from China will be of particular interest to traders as it will reflect the effectiveness of recent stimulus measures.

US dollar index and yield

US yields fell sharply at the end of the month due to buying and geopolitical concerns. The US dollar index fell after eight straight weeks of gains. It closed at 105.74 and was down about 1.75% for the week. Ten-year US yields were down more than 5% on the week, at 4.18% on Friday; The two-year yield was also down more than 5% on the week at 4.16%.

ETFs:

Total known global gold ETF holdings were 83.166MOz, up from the previous week’s level of 83.093Moz on November 28.

Gold-Copper Ratio:

The ratio reached a post-GFC 2008 high due to concerns about the global economy.

China’s gold market

According to a report by Chinese media outlet Yicai Global, a number of Chinese commercial banks have reclassified physical gold as ‘high risk’ to protect risk-averse customers from extreme volatility in gold prices.

Outlook

Spot gold was caught amid safe-haven demand and risk-on trading as traders await incoming President Trump’s economic policies. US yields have fallen due to the prospect of deficit reduction. At the same time, potential trade frictions also support the metal.

Gold is reacting strongly to headlines regarding the Russia-Ukraine war; However, geopolitical risks, although high, are still perceived as encompassing by traders. However, the possibility of the situation becoming dire is not really non-existent, so buying dips is preferred. Strong US data and the inherent geopolitical risks could weigh heavily on the metal in the near term.

In the short term, the metal is mostly seen trading between $2600 and $2700. Support is at $2630/$2600/$2565. Resistance is at $2665/$2700/$2720.

(The author is Associate Vice President, Fundamental Currencies and Commodities, Meera Asset at Sherkhan)

(Disclaimer: This is an AI-generated article. Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)