- Gold price attracts some sellers for the second straight day, though the downside seems limited.
- The optimism over China’s stimulus measures drives some haven flows away from the XAU/USD.
- Geopolitical risks and dovish Fed expectations could help limit losses for the safe-haven commodity.
Gold price (XAU/USD) remains under some selling pressure for the second straight day on Monday, though a combination of factors should help limit deeper losses. Israel intensified the war at its border with Lebanon, raising the risk of a further escalation of geopolitical tensions in the Middle East. Apart from this, news that Japan’s new Prime Minister Shigeru Ishiba is planning a general election for October 27, along with the US political uncertainty, should lend support to the safe-haven precious metal.
Furthermore, dovish Federal Reserve (Fed) expectations keep the US Dollar (USD) bulls on the defensive, near the lowest level since July 2023 touched on Friday, and might hold back bearish from placing aggressive bets around the non-yielding Gold price. Meanwhile, the upbeat market mood, bolstered by additional stimulus announced by China over the weekend, prompts some profit-taking around the safe-haven XAU/USD ahead of Fed Chair Jerome Powell’s speech later during the US session this Monday.
Daily Digest Market Movers: Gold price keeps the red amid upbeat market mood, downside potential seems limited
- Israel expanded its confrontation with Iran’s allies – Houthis in Yemen and Hezbollah in Lebanon – and launched aggressive aerial assaults on Sunday, fueling fears about an all-out war in the Middle East.
- According to a statement by the Israeli Defence Forces dozens of aircraft, including fighter jets, power plants and a seaport at the Ras Issa and Hodeidah ports in Yemen were targeted in the airstrikes.
- Israeli airstrikes across Lebanon killed the deputy head of the militant group Hezbollah’s Central Council, Nabil Kaouk, making him the seventh leader slain in Israeli attacks in a little over a week.
- Investors now seem concerned that the fighting could spin out of control and draw in Iran and the United States, Israel’s main ally, which, in turn, should act as a tailwind for the safe-haven Gold price.
- The current market pricing indicates a greater chance that the US Federal Reserve will again lower borrowing costs by 50 basis points for the second straight monetary policy meeting in November.
- Dovish Fed expectations fail to assist the US Dollar to register any meaningful recovery from its lowest level since July 2023 and should contribute to limiting losses for the non-yielding yellow metal.
- St. Louis Fed President Alberto Musalem said on Friday that the US central bank should revert to cutting interest rates gradually after a larger-than-usual half-point reduction in the September meeting.
- The global risk sentiment gets an additional boost after the People’s Bank of China announced on Sunday that it would tell banks to lower mortgage rates for existing home loans by October 31.
- This comes on top of last week’s slew of monetary, fiscal and liquidity support measures – China’s biggest stimulus package since the pandemic – and remains supportive of the upbeat mood.
- China’s official Manufacturing PMI improved to 49.8 in September from 49.1, beating estimates of 49.5, while the NBS Non-Manufacturing PMI unexpectedly fell to 50.0 from August’s 50.3 figure.
- China’s Caixin Manufacturing PMI contracted to 49.3 in September, from 50.4 in the previous month, and the Caixin Services PMI dropped to 50.3 during the reported month from 51.6 in August.
- Meanwhile, the upbeat mood is seen exerting some downward pressure on the safe-haven precious metal as traders now look to Fed Chair Jerome Powell’s speech for some meaningful impetus.
Technical Outlook: Gold price setup remains tilted in favor of bulls, $2,625 resitance-turned-support holds the key
From a technical perspective, any subsequent fall is likely to find decent support near a short-term ascending trend-channel resistance breakpoint, around the $2,625 region. This is followed by the $2,600 mark, which if broken decisively could pave the way for some meaningful downside in the near term. Given that the Relative Strength Index (RSI) on the daily chart is still hovering near the overbought zone, the Gold price might then accelerate the slide towards the $2,560 intermediate support en route to the $2,535-2,530 region.
On the flip side, the $2,670-2,671 area now seems to act as an immediate hurdle ahead of the $2,685-2,686 zone, or the record high touched last Thursday. This is closely followed by the $2,700 round figure, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a multi-month-old uptrend.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.