Precious Metal Prices Face Short-term Correction Pressure

US Dollar and London Gold Trends

After the release of U.S. non-farm data, precious metal prices briefly rose and then began a correction. It stands to reason that poor U.S. employment data would ease expectations of the Federal Reserve raising interest rates, thus supporting precious metal prices, but this is not the actual performance. What factors are currently driving the trend of precious metals? Will the correction trend in precious metal prices continue?
Risk aversion peaks and falls
Before the new round of conflicts between Palestine and Israel, precious metal prices showed strong pressure under the "hawkish" stance of Federal Reserve officials. However, the Palestinian-Israeli conflict intensified economic risks and promoted risk aversion in the market, causing precious metal prices to quickly bottom out. Bottom rebound.
Recently, the price trend of precious metals has clearly shown the characteristics of risk aversion.
First, precious metal prices rise and fall in tandem with the U.S. dollar and U.S. Treasury yields, which is inconsistent with past negative correlations. It is worth noting that U.S. bonds are also safe-haven assets and are often sought after by the safe-haven market. However, in this round of market, U.S. Treasuries have been sold off, which shows that the market is worried about U.S. Treasuries. This is mainly due to the US government's continued support for Israel, including strengthening US military forces near Israel and strong support for Israel at the United Nations. The market is increasingly worried about the United States' deep involvement in the Palestinian-Israeli conflict. As a result, U.S. Treasuries were briefly sold off.
Secondly, the synchronicity between precious metal prices and oil price fluctuations has increased significantly. The Palestinian-Israeli conflict once caused the market to worry about the supply of crude oil in the Middle East, and oil prices rose sharply. However, since late October, oil prices have gradually fallen, and market concerns about the risk of the Palestinian-Israeli conflict spreading have weakened.
Although the current geopolitical situation is still unstable, risk aversion has been significantly digested. If the conflict fails to spread further, the support for precious metal prices from hedging demand will gradually weaken.
Dollar and U.S. bond yields
There is still support in the short term
Changes in the U.S. dollar and U.S. bond yields remain the most important drivers of precious metals trends, but in the short term, their downside space is limited, weakening support for precious metal prices.
As for the U.S. dollar, the U.S. economy remains resilient and non-U.S. economies are performing weakly, making it difficult for the U.S. dollar to fall significantly. The recently released U.S. retail sales data exceeded expectations, showing that consumption, the main driver of the U.S. economy, remains strong, the non-manufacturing PMI is still above the boom-bust line, and consumer confidence has also recovered. Therefore, the Federal Reserve revised its description of the expansion rate of economic activity from "moderate" to "strong" in its November interest rate meeting statement. Europe and other regions performed relatively weakly. In the third quarter, the Eurozone's quarterly GDP fell by 0.1% from the initial value, and the economy fell into a slight recession.
In terms of U.S. bond yields, after the Federal Reserve's interest rate meeting, many Federal Reserve officials made "hawkish" comments. Most Fed officials continue to emphasize inflation risks and favor further rate hikes. Although the Fed Watch tool indicates that the Fed will not raise interest rates further, the stubbornness of inflation also makes it difficult for the Fed to start cutting interest rates in the short term.