**Gold Pulls Back After Reaching Record Highs Amid Profit-Taking and Shifting Market Sentiment**
*Originally reported by FXStreet’s Pranav Kashyap*
Gold prices nudged lower in Friday’s early trading session, retreating from a historic high reached earlier in the week. This mild pullback is largely attributed to short-term investors locking in profits after bullion surged to a new record above $2,088 per ounce. Despite the temporary dip, broader market sentiment continues to support the case for higher gold prices in the medium to long term, driven by evolving macroeconomic factors and a shifting outlook for U.S. monetary policy.
## Overview of the Gold Market’s Recent Performance
– Gold hit an all-time high this week at $2,088 per ounce.
– Prices scaled up primarily due to increased investor confidence that the U.S. Federal Reserve will pivot toward interest rate cuts in the first half of 2024.
– The latest correction is generally seen as temporary, triggered by traders booking profits after a significant rally.
– Spot gold remained under pressure during the Asian trading session on Friday, with a 0.2 percent decline, placing it just above $2,077 per ounce at the time of writing.
– Comex gold futures also slid slightly, trading at $2,087.70 per ounce.
Commodity analysts cite macroeconomic shifts, central bank activity, and heightened geopolitical risks as longer-term bullish drivers for the yellow metal, despite the short-term correction.
## Factors Driving Gold’s Record Rally
### 1. Pivot in Federal Reserve Policy Expectations
The gold surge was fueled, in large part, by growing market consensus that the Fed has finished raising rates and could begin lowering them as early as March 2024. This belief is backed by:
– Declining inflation rates, as per the U.S. Consumer Price Index (CPI), which dropped to 3.1 percent in November from highs near 9.1 percent in June 2022.
– Slowing job market momentum, with recent jobless claims showing higher-than-expected filings.
– Growing concerns about a potential economic slowdown or recession, prompting the Fed to ease monetary tightening.
Lower interest rates decrease the opportunity cost of holding non-yielding assets like gold, making it more attractive for investors.
### 2. Safe-Haven Demand Amid Global Uncertainty
Gold’s role as a safe-haven asset continues to bolster its appeal, especially amid:
– Escalating tensions in the Middle East, particularly involving Israel and Hamas in Gaza.
– Continued conflict in Ukraine.
– Trade uncertainties between the U.S. and China.
– Persisting fears of a global economic slowdown.
These factors help support demand for gold, especially from institutional investors looking to hedge against political and financial instability.
### 3. Central Bank Gold Purchases
According to data from the World Gold Council, 2023 saw strong demand for gold from central banks, which seek to diversify their reserves away from the U.S. dollar. Key highlights include:
– Central banks added approximately 800 tons of gold to reserves during the first nine months of 2023.
– China, Turkey, and India were among the top buyers.
– This institutional demand provided an undercurrent of support for gold prices throughout the year.
### 4. Weakening U.S. Dollar and Treasury Yields
The U.S. dollar index (DXY) came under pressure in recent weeks, offering further support to precious metals priced in dollars.
– A weaker dollar makes gold more affordable for non-dollar investors.
– Falling U.S. Treasury yields also contribute to gold’s appeal as a non-interest-bearing safe haven.
## Short-Term Correction: A Normal Market Response?
Despite these bullish fundamentals, the recent pullback in gold prices is typical of overbought markets where short-term traders take profits. This is highlighted by:
– Overbought conditions in various technical indicators, including Relative Strength Index (RSI).
– Near-term
Read more on USD/CAD trading.