Gold prices hit a near one-month high on Wednesday, fuelled by increasing safe-haven demand amid heightened geopolitical tensions.
Meanwhile, demand from global central banks have also boosted sentiments in the market.
At the time of writing, the February gold contract on COMEX was $2,730.80 per ounce, up 0.5% from the previous close.
The contract had hit $2,740.82 an ounce, earlier in the session, its highest level since November 7.
According to David Morrison, senior market analyst at Trade Nation, the sharp rise in gold prices this week represents “an impressive recovery” from the lows hit less than a month ago.
He added:
But the bulls will also want gold to hold $2,600 as support on any pullbacks.
Investors will also wait for the release of the US consumer price index data later in the day, and the producer price index data on Thursday.
Both data are crucial for the US Federal Reserve to gauge the health of the country’s economy to make decisions on monetary policy.
Geopolitical risks spur safe-haven buying
Israel launched airstrikes at military targets across Syria and deployed ground troops beyond a demilitarized buffer zone for the first time in 50 years following the collapse of President Bashar al-Assad’s regime over the weekend.
Political turmoil in South Korea also remained in focus with President Yoon Suk Yeol facing criminal charges over a failed attempt to impose martial law.
Meanwhile, in Asia, Taiwan raised an alert after China sent about 90 ships in reported war drills around the island, according to Reuters.
This is the first time in decades that China has engaged in such movements around Taiwan.
Political instability in these countries have kept investors away from riskier assets.
China’s central bank bought gold in November
The People’s Bank of China (PBoC) purchased gold again in November for the first time since April, according to World Gold Council’s data.
According to a PBoC publication, its gold holdings rose to 72.96 million ounces by the end of November, compared with 72.80 million ounces at the end of October.
“More important, however, is the signal that the PBoC has started buying gold again after having paused for six months,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
“The purchases may have been in response to Donald Trump’s election victory, which threatens China with the introduction of punitive tariffs of 60%,” he said.
Fritsch also believes that the correction in gold prices in November from record highs was also attractive for China.
Fritsch notted:
It will now be important that gold purchases continue in the coming months, i.e. that the purchases in November do not remain a flash in the pan.
Focus on US CPI and Fed policy
According to a Reuters poll, US CPI inflation is expected to have risen by 0.3% in November and 2.7% on a yearly basis.
“The CPI data will have limited impact on gold, especially if we get a print around the expected figure. A hot CPI report will reduce the odds of rate cuts in early 2025 further,” Fawad Razaqzada, market analyst at Forex.com told Kitco.
Traders are still pricing in a 86.1% probability of the Fed cutting interest rates by 25 basis points at next week’s meeting, according to the CME FedWatch tool.
“However, the recent hawkish remarks from several influential FOMC members, including Fed Chair Jerome Powell, suggested that the US central bank might adopt a more cautious stance on cutting interest rates,” Haresh Menghani, editor at FXstreet said in a note.
Gold prices had breached the resistance of $2,735 earlier in the session.
Menghani said that this indicates that the recent corrective decline from record highs touched in October has run its course, shifting the bias in favour of bullish traders.
The momentum might then lift the Gold price to the $2,758-2,760 barrier en-route to the $2,770-2,772 region and the $2,790 area, or the record peak.
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