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Gold hits record high amid dollar and yield decline

Gold reached a record high on Friday as the dollar and Treasury yields fell following weak US economic data. Investors seemingly disregarded Fed Chair Jay Powell’s warning of potential rate hikes if inflation strengthens once more.

Meanwhile, oil prices slipped as traders in the sector questioned whether OPEC+ (led by Saudi Arabia and Russia) had lost market influence with their latest reaffirmation of production cuts falling on deaf ears.

Spot gold closed at $2,070.10, just $10 shy of the record high achieved in May. Comex’s continuous contract of gold futures, which merges the most active contract month into the next, broke the record high, closing at $2,091.30 after surging by over $35 in a single day.

The previous highest close for the continuous futures contract was on May 4 when gold futures reached an intraday high of approximately $2,083 and closed at around $2,059 per ounce.

Comex Gold for February delivery gained $32.50 to settle at $2,089.70 per ounce, surpassing the May 4 record of $2,080, and added $1.60 in after-hours trading. Gold prices rose 3.5% in November, surpassing the $2,000 per ounce mark as the dollar and bond yields fell.

The focus has now shifted to when central banks will begin to cut rates, reducing the carrying cost of owning gold.

“With the market anticipating a Fed rate cut after Q1 and the ECB potentially cutting rates earlier, gold prices have improved significantly. Falling yields in November have reduced opportunity costs, and a weaker dollar this past month has opened up upside for gold prices,” noted Christopher Louney, a commodities strategist at RBC Capital Markets.

This rise in gold prices coincided with the US manufacturing activity index for November, which remained unchanged at 46.7%, below the market estimate of 47.7%. The S&P Global manufacturing purchasing managers index also missed expectations, holding steady at 49.4, under the consensus estimate of 49.6. A reading below 50 indicates a contraction in activity.

Gold’s price surged 3.5% in November, surpassing the $2,000 mark, as the dollar weakened following reports suggesting a slowing US economy.

Treasury yields also dropped, with the US two-year note yielding 4.572%, down 13.4 basis points, and the 10-year note yielding 4.20% at Friday’s close.

Despite the growing optimism about the economy, Jay Powell stated that the Federal Open Market Committee plans to maintain a “restrictive” policy until they are certain that inflation is firmly heading back to 2%. Powell emphasized that it would be premature to conclude otherwise or speculate on when policy might ease. He also noted that policy is “well into restrictive territory,” and the balance of risks between doing too much or too little on inflation is now nearly balanced, which traders interpreted as a sign of an imminent rate cut.

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