XAUUSD - Gold will welcome the holidays?!

그저께

Gold is located between EMA200 and EMA50 in the 1-hour time frame and is trading in its short-term ascending channel. In case of a valid failure of the bottom of the channel, we can see the continuation of gold's decline and seeing the demand zone. Within the demand range of demand, we can buy with a suitable risk reward. If the upward movement continues, gold can be sold in the supply zone.

Without a doubt, 2024 has been the year of the US dollar. While high inflation continued to spread across Europe and other parts of the world in 2023, the Federal Reserve reported progress in controlling price growth. Similar to last year, other central banks have been more proactive in reducing interest rates, but the slow pace of inflation containment has delayed the Federal Reserve’s rate-cutting process.

Federal Reserve officials now anticipate only two 0.25% interest rate cuts in 2025. As a result, it is expected that the Federal Reserve will maintain a tighter monetary stance compared to other major central banks, except for the Bank of Japan, which is currently increasing its interest rates.

This decision follows previous rate cuts implemented earlier this year, including a 50-basis-point reduction in September and a 25-basis-point cut in November. Overall, these measures have resulted in a full 1% decrease in the benchmark rate, signaling a shift in the Federal Reserve’s approach to the current economic environment.

By lowering interest rates, the Federal Reserve aims to stimulate consumption while continuing to monitor inflationary pressures. Although these pressures have generally subsided, they have slightly risen in recent months. Nonetheless, the decision to reduce rates could benefit borrowers by lowering consumer interest rates, making it more affordable to buy homes, secure personal loans, or borrow funds in other areas. However, the implications extend beyond lending.

Adjustments to the Federal Reserve’s interest rates could create a complex environment for investors, particularly those drawn to traditional safe-haven assets like gold. Historically, the relationship between interest rates and gold prices has been inversely proportional. Lower rates typically increase gold valuations, as the reduced cost of holding non-yielding assets like gold makes it more appealing, thereby driving up demand and prices.

However, it is crucial to understand that the impact of interest rate decisions on gold prices operates within a broader network of interconnected factors beyond monetary policy. For investors considering adding gold to their portfolios, understanding this broader context is essential.

In addition to Federal Reserve policies, one key driver of the gold market is central bank purchases, particularly by emerging economies seeking to diversify their reserves. These purchases have recently reached historic levels, providing substantial support for gold prices. Global trade tensions, supply chain disruptions, and evolving industrial demand—especially from technology and renewable energy sectors—also add layers of complexity to the gold market.

In the first quarter of this year, India’s central bank recorded a net purchase of 77 tons of gold, followed by Turkey’s central bank with 72 tons, increasing the share of gold in its foreign reserves to 34%. Poland, with a purchase of 69 tons, was the third-largest buyer, while China, traditionally the largest gold buyer in recent years, ranked fourth with less than 30 tons.

BlackRock, the world’s largest asset manager, has predicted in its 2025 global outlook report that the coming year will be marked by increased geopolitical fragmentation and the formation of rival economic and political blocs. These developments are likely to accelerate the trend of de-dollarization and bolster gold purchases.

Moreover, the strength of the US dollar continues to play a crucial role in gold pricing. However, factors such as relative economic growth rates, trade balances, and international capital flows can overshadow this influence.For instance, the dollar may strengthen if major economies face significant challenges or if investors seek safe-haven currencies during market turmoil—even in a rate-cut environment.

Inflation expectations also strongly influence the gold market. While moderate inflation typically supports gold as a store of value, extreme inflation may shift investment patterns, potentially reducing demand if other assets offer higher returns. Changes in consumer demand, particularly from major gold-buying countries, can also impact prices. Additionally, seasonal trends, such as increased gold purchases during festivals or weddings in these countries, may contribute to price fluctuations.

Finally, US President Joe Biden signed a budget bill that will fund the government until mid-March next year, preventing a year-end shutdown. This legislation, recently approved by both the House of Representatives and the Senate, ensures government operations continue until the beginning of Donald Trump’s presidency next year.