Gold Rebounds After Deep Weekly Loss With Rate Outlook in Flux

Gold investors breathed a sigh of relief this week as the precious metal rebounded from a deep weekly loss, driven by a shift in interest rate expectations. The market initially priced in a 75 basis point (bps) rate cut in December, but this expectation waned following Fed Chair Powell's speech on Wednesday, which was perceived as hawkish. This shift led to a sell-off in gold, with the price dropping from around $2,620 to a low of $2,537 on Thursday. However, as more dovish Fedspeak emerged, including comments from Fed Bank of San Francisco President Mary Daly, the market repriced a 50 bps cut, leading to a gold rebound. As of Friday, gold is trading around $2,610, reflecting the market's uncertainty about the Fed's next move.

Geopolitical tensions and safe-haven demand significantly contributed to gold's rebound. Israel's attacks on targets in Lebanon and anticipation of a retaliatory strike by Iran increased market uncertainty. Gold, as a safe-haven asset, attracted investors seeking refuge from geopolitical risks. This is evident in the FXStreet article (Number: 1), which notes that gold "might be underpinned by safe-haven demand" amid elevated geopolitical tensions.

Technical indicators, such as support levels and moving averages, also contributed to gold's recovery. Gold's recovery from a deep weekly loss was supported by technical indicators, with buyers defending the downside at around a bullish 20 Simple Moving Average (SMA), currently at around $2,638. The 100 and 200 SMAs also headed north, far below the shorter one, indicating bulls' dominance. The Momentum indicator hovered around its 100 line, while the Relative Strength Index (RSI) turned modestly higher at around 62, further supporting the bullish case. Near-term, XAU/USD developed above a flat 100 SMA, with the 20 SMA crossing above it, reflecting increased buying interest. Although technical indicators lost their upward strength, they held well above their midlines, suggesting chances of fresh record highs, particularly if the $2,638.00 level holds.

Gold's performance compared to other safe-haven assets and commodities during this period was notable. Gold rebounded after a deep weekly loss, driven by a shift in interest rate expectations. The precious metal, typically seen as a safe haven, outperformed other commodities and safe-haven assets during this period. Gold's inverse correlation with the US Dollar and Treasury yields played a significant role in its performance. The US Dollar and Treasury yields consolidated after Fed Chair Powell's speech, allowing gold to recover from critical support. The mixed Chinese data and geopolitical tensions also contributed to gold's safe-haven appeal.

In conclusion, gold's recent rebound, following a deep weekly loss, can be attributed to the flux in interest rate outlooks, particularly in the US. The uncertainty around future rate cuts by the Federal Reserve has led to a decline in the US Dollar and Treasury yields, making non-yielding gold more attractive. This is evident from the data in the Background, where gold price recovered from critical support levels after Powell's speech, despite the mixed Chinese data dump. As the global economy grapples with slowing growth and geopolitical tensions, investors are increasingly seeking safe-haven assets like gold. The inverse correlation between gold and the US Dollar, as well as the precious metal's role as a hedge against inflation, further supports its appeal. Therefore, the global economic outlook, influenced by interest rate uncertainty, is a significant driver of gold's demand and price.