Gold rallies back above $2,700 on Russia-Ukraine tensions
LONDON (November 22) Gold (XAU/USD) rallies for the fifth day in a row, making it a clean-sweep of green daily candlesticks for the week so far. The precious metal rises back above $2,700 during the European session on Friday as inflaming Russia-Ukraine tensions drive renewed safe-haven flows into Gold.
That said, the yellow metal may see gains capped by a stronger US Dollar (USD), which continues to rise on the back of elevated US inflation expectations, the anticipation of the Trump government implementing Dollar-positive policies in January, and a robust US labor market.
Gold rises as Russia threatens United Kingdom
Gold is rallying on the back of increased haven flows after the Russian Ambassador for the UK, Andrey Kelin, told Sky News that the UK was now a legitimate target for Russian missile strikes after permitting Ukraine to use its British-made Storm Shadow missiles on Russian territory.
The comments mark an escalation in the conflict and come after Russia used intercontinental ballistic missiles in a strike on the Ukrainian city of Dnipro. This was a reprisal for an attack by Ukraine on Russian targets in the Kursk region, using British-made long-range missiles. This follows US President Biden’s decision to allow Ukraine to use its US-made ATACMS (Army Tactical Missile System) missiles against targets on Russian soil.
Gold faces headwinds from USD and Fed
Gold could face headwinds as the US Dollar rises on Friday, given the precious metal is mainly priced and traded in USD, so a strengthening Greenback tends to lower Gold’s price.
The move comes as US interest rate expectations continue to smooth. Although interest rates were previously expected to fall dramatically into year-end, the forecast downward trajectory is now shallower. The prospect of interest rates remaining relatively elevated is negative for Gold because it increases the opportunity cost of holding the precious metal.
The change comes in part after US Initial Jobless Claims data on Thursday revealed that a lower-than-expected 213,000 people claimed unemployment benefits in the US in the week ending November 15, compared to the 220,000 expected.
Given one of the Fed’s twin mandates is fostering full employment, the data suggests less urgency to lower interest rates to spur job creation.
Still, the claims data was not all rosy, with Continuing Claims in the week ending November 8 rising to 1,908 million, above the 1,870 million expected and the previous figure.
Also sapping demand for Gold is competition from Bitcoin (BTC), which is surging to just below the $100,000 mark.
A rise in Bitcoin Exchange Traded Fund (ETF) inflows in November – ETFs enable investors to own shares that track BTC’s price rather than owning the asset itself – has coincided with a similar surge in outflows from Gold ETFs, according to Bloomberg News. This suggests Gold is suffering as a consequence of Bitcoin’s outperformance.
FXStreet
