Weekly Outlook: Gold to rise if global tensions escalate

November 23, 2024 (MLN): The US economy is doing well overall, according to recent data, which points to improved performance this month. The good news is that the economic data indicate that inflation is decreasing to levels that the Fed has set as its objective.

A boost in growth and decreased inflation are both signs of a healthy economy.

In the meantime, the Eurozone economy is not getting much better, since there have been signs of a notable downturn in its economic activity. The output is decreasing. Another crucial factor is political instability.

This would compel the ECB to consider a larger drop of 50 bps next month rather than the anticipated 25 bps cut. The service and manufacturing sectors have shrunk.

The two main threats are geopolitical ones brought on by the growing hostility between Russia and Ukraine and the possibility of tariffs when Donald Trump becomes President.

Similar difficulties have struck the British economy as well. UK's economy struggled to recover well after leaving BRICS.

Recently reported economic data indicate that the consumer spending and economic sentiments have been steadily falling, which is not promising and suggests that the economy's recovery may take longer than expected.

The recently announced UK's budget failed to provide economy the much needed boost and gave investors no comfort of ease.

The Bank of England might still be reluctant about the December interest rate cut and I wouldn't be surprised if it remains unchanged.

While the market is still anticipating a drop in US interest rates in December. However, even with weaker inflation, yields on US Treasury bonds are up and the USD index is still rising.

Gold prices, however, saw significant fluctuations following the outcome of the US election.

But the rising global tension caused gold to jump by almost $ 150 last week.

Any news about growing geopolitical trouble will continue to drive gold prices higher, which enjoy the safe haven status, as global Central Bank's buying interest dominates the market share that has increased to between 12% to 13% of its reserves portfolio.

Similarly, calmer conditions will enable a more significant decline in the price of gold.

Putin's threat to use nuclear weapons and the firing of new ballistic missiles has kept market participants alert and uneasy, which has also caused oil prices to rise that would put more pressure on countries already struggling with growing debt.

The market is in a difficult position to assess the risk in this scenario. If the tension is reduced, it can be reversed.

A significant contributor to market volatility that may keep economic events in the background is the persistent conflict.

#GOLD @ $ 2712.50- The level to watch is $ 2732-38. Only break could push it up towards $ 2755/60 zones before gold eases.

But if gold fails to move up, there is downside risk. The key support is a $ 2678-80. Break will encourage for a test of $ 2615-20 zones. The market will continue to be erratic.

#EURO @ 1.0417- On dips, Euro should find strong support in the range of 1.0310-20 levels for a gradual up move towards 1.0498 zones. Break will push it towards 1.0560. Alternatively next support is at 1.0260.

#GBP @ 1.2531- Support for the Pound Sterling is at 1.2420 on the downside and it should hold.

But, it must clear 1.2660 to reach 1.2744. Or else watch 1.2350 if it dips.

#JPY @ 154.74- USD has strong resistance at 156.10. Break risk for further advances in the direction of 156.90 zones.

However, on the downside, break of support level of 153.40 could push it towards 152.70.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.