Gold must demonstrate resilience to downward pressure for sustained upside potential

Gold prices were little changed on Thursday despite political turmoil in France and South Korea as safe-haven demand remained limited.

According to experts, the dollar’s rise and improved risk appetite among investors have been weighing on the yellow metal’s progress recently. 

“Gold bulls have been shaken by several recent events, the first being the protracted slump which followed Trump’s election victory in early November,” David Morrison, senior market analyst at Trade Nation, said. 

Since Trump’s victory, Wall Street’s major averages have risen sharply, undermining gold’s appeal as a safe-haven asset. 

In early November, gold prices had fallen as low as $2,530 per ounce, but it recovered above $2,700 in the following weeks. 

However, another sell-off in the last week of November dragged down prices to around $2,660 per ounce. 

Morrison said:

Additionally, US Federal Reserve Chair Jerome Powell’s comments about a cautious approach to monetary policy easing also weighed on sentiments. 

At the time of writing, the February gold contract on COMEX was $2,674.75 per ounce, down just 0.1% from the previous close. 

Gold needs to consolidate for further upside

According to Morrison, the “would-be buyers” in the gold market are cautious at the moment as they remain wary of another sharp sell-off. 

Gold’s start to December so far has been muted, with prices declining by nearly $7 per ounce since the last trading session of November on Friday. 

The market traded cautiously ahead of important economic data from the US later this week. 

The US non-farm payrolls data and unemployment benefit claims could be crucial for the US Fed’s decision-making on interest rates. 

Economic data and Powell's comments

Thursday’s ADP employment report showed the private sector in the US added 146,000 jobs in November. 

This figure represents a notable decline from the previous month's 233,000 jobs and falls short of the MarketWatch consensus expectation of 163,000 new positions.

The market will be waiting for Friday’s US nonfarm payroll jobs report, which is likely to provide further cues on the labor market’s health. 

Fed Chair Powell on Wednesday said that the current economic landscape was stronger than the central bank’s September projections. He further said that the bank must be cautious towards future rate cuts. 

Powell said at a New York Times event:

Despite the hawkish tone, traders have priced in a 73.8% probability of the Fed cutting interest rates by 25 basis points later this month, according to the CME FedWatch tool. 

“Looking ahead, the gold market's short-term forecast maintains a guarded perspective,” Gary Wagner, technical market analyst, at Kitco.com, said in a report. 

Limited safe-haven inflows despite political turmoil

Gold prices were largely muted on Thursday even as France’s government collapsed, while calls for impeaching South Korea’s President Yoon-Suk-Yeol grew. 

While the stock markets in France and South Korea fell, the broader equity market gained. 

Wall Street indexes hit record highs on Wednesday on strength in technology shares. 

Among other precious metals, platinum futures were largely unchanged at $952.90 per ounce, while silver was down 0.5% at $31.765 per ounce. 

Meanwhile, the three-month copper contract on the London Metal Exchange was slightly up by 0.2% at $9,124 per ton.