Gold: Safe-Haven Demand Boosts Prices Ahead of PMI Data

Gold has rallied this week on the back of growing geopolitical tensions. The Ukraine war escalated this week when Ukraine hit Russia with US missiles. In response, Russian President Putin lowered the threshold for using nuclear power. After that, the two countries exchanged missiles on Thursday morning, raising fears of an escalation that would hurt the global economy.

At the same time, investors were disappointed by the lackluster Nvidia earnings, so they dumped equities and bought gold as risk sentiment dropped. Meanwhile, market participants kept an eye on US politics and economic data, which has shifted the outlook for Fed rate cuts.

Trump is in the process of forming his cabinet. His policy changes, which might come next year, will likely increase economic growth and boost consumer prices. As a result, markets have shifted the outlook for Fed rate cuts to a more gradual pace in 2025. High rates for longer will keep downward pressure on gold.

However, economists still expect the Fed to cut interest rates in December since inflation aligned with expectations. Nevertheless, the outcome will depend on incoming data, including US manufacturing and services business activity.

Gold Fundamental Analysis

The US will release its flash PMI figures on Friday, showing the level of business activity in the economy. According to estimates, the manufacturing PMI might increase from 48.5 to 48.8. On the other hand, the services PMI might rise from 55.0 to 55.2. If the figures align with estimates or lower, the Fed will have more reason to cut interest rates in December. Therefore, rate-cut bets will increase, and gold prices will rally.

Meanwhile, if business activity is better than expected, it will indicate a resilient and robust economy. Therefore, investors would slash rate-cut bets, putting downward pressure on gold prices.

Gold Technical Analysis

On the 4-hour chart, gold has rebounded from swing lows near the 2550.52 level. Currently, the price trades well above the 22-SMA, and the RSI is about to enter the overbought region.

Sentiment shifted suddenly when the downtrend reached the 2550.52 support level. Since then, the price has been on a steep climb above the SMA. However, bulls now face a solid resistance zone comprising the 2670.47 level and the 50.0 Fib retracement level.

If bulls remain in control with strong momentum, the price might break above this zone. However, it might pull back to retest the 22-SMA before breaking above the zone. A good catalyst like weak business activity data or an escalation in geopolitical tensions might be enough to facilitate such a move. Moreover, bulls would aim for the next resistance level at 2745.53.

On the other hand, if bears resurface, ready to take back control, the price will bounce lower and break below the 22-SMA. Moreover, it might keep dropping to revisit the 2550.52 support level. Upbeat PMI figures would support such a move.

Meanwhile, on the daily chart, the price is recovering to retest the 22-SMA after a recent reversal to the downside. The bullish trend paused at the 2791.10 swing high, where bears took charge. It broke below the SMA and made a lower low, signaling a reversal.

However, bulls returned at the 2556.83 support to challenge the bearish impulse. If the price breaks above the SMA, it will signal a continuation of the previous bullish trend.

On the other hand, if the SMA holds firm as resistance, the price will bounce lower to retest the 2556.83 support. A break below this level would make a lower low, confirming the new downtrend. Furthermore, bears will target the 2350.26 support level.

Key Support Levels

Support 1: 2556.83, a daily swing low

Support 2: 2550.52, a 4-hour swing low

Support 3: 2350.26, a daily swing low

Key Resistance Levels

Resistance 1: 2791.10, a daily swing high

Resistance 2: 2745.53, a 4-hour swing high

Resistance 3: 2670.47, a 4-hour swing high

Final Thoughts

Gold has been on a downtrend since Trump won the US presidential election and shifted the outlook for Fed rate cuts. However, geopolitical tensions have brought back safe-haven demand for the yellow metal, boosting prices. As market participants watch developments between Russia and Ukraine, they will also watch incoming data. The US will release business activity data, shaping the outlook for the December Fed meeting. Better-than-expected numbers will lower the likelihood of a rate cut and hurt gold. On the other hand, downbeat figures will solidify bets for a December rate cut, boosting prices.

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