- Gold price attracts some haven flows amid the risk-off mood and Middle East tensions.
- A modest USD downtick further benefits the XUA/USD, though the upside seems limited.
- Bets for smaller rate cuts by the Fed should limit the USD losses and cap the yellow metal.
Gold price (XAU/USD) edges higher for the second straight day on Wednesday – also marking the fourth day of a positive move in the previous five – and climbs a one-and-half-week high, around the $2,670 region during the Asian session. Against the backdrop of persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, the risk-off impulse is seen as a key factor offering some support to the safe-haven precious metal.
Meanwhile, the US Dollar (USD) is seen consolidating its recent strong gains to over a two-month peak and does little to provide any impetus to the Gold price. That said, firming expectations for a less aggressive policy easing by the Federal Reserve (Fed) and bets for a regular 25 basis points (bps) rate cut in November should limit any meaningful USD corrective decline. This warrants caution before placing bullish bets around the non-yielding yellow metal.
Daily Digest Market Movers: Gold price is underpinned by a combination of factors, lacks bullish conviction
- US Treasury bond yields fell for a second day on Tuesday as traders reacted to weaker-than-expected manufacturing data and easing inflation risks on the back of fall oil prices, boosting demand for the non-yielding Gold price.
- The New York Federal Reserve’s Empire State Manufacturing Index fell following a surge to a 29-month high in September, to -11.9 in October, marking the weakest reading since May and indicating deteriorating conditions.
- Easing fears of a supply disruption, along with a weaker demand outlook, drag Crude Oil prices to a two-week low, which is expected to reduce inflationary pressures and allow the US central bank to cut interest rates further.
- The markets, however, are pricing in a greater possibility of a smaller interest rate cut at the next FOMC policy meeting in November, which should underpin the US Dollar and keep a lid on any further gains for the XAU/USD.
- Meanwhile, San Francisco Fed President Mary Daly noted on Tuesday that the US central bank has made significant progress on tamping down inflation and sees one or two more rate cuts this year if economic forecasts are met.
- Separately, Atlanta Fed President Raphael Bostic said that he doesn’t see strong signs of a potential recession looming over the horizon as the US economy continues to perform well and that the inflation is heading back to 2%.
- On Tuesday, Israeli Prime Minister Benjamin Netanyahu rejected the idea of a ceasefire in Lebanon, while the militant group Hezbollah threatened to widen its attacks, raising the risk of a further escalation of the conflict.
- The Biden administration has warned Israel that it faces possible punishment, including the potential stopping of US weapons transfers if it does not take immediate action to let more humanitarian aid into Gaza.
- The market attention will be on the US economic releases – Monthly Retail Sales, Industrial Production, and the usual Weekly Initial Jobless Claims – and the Chinese macro data dump due later this week.
Technical Outlook: Gold price remains close to all-time peak, bullish potential seems intact
From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,685-2,686 region, or the
all-time peak touched in September. This is closely followed by the $2,700 round-figure mark, which if cleared decisively will set the stage for an extension of a well-established multi-month-old uptrend amid positive oscillators on the daily chart.
On the flip side, immediate support is pegged near the $2,650 area, below which the Gold price could slide to the $2,632-2,630 region. Any further decline is likely to attract some buyers and remain limited near the $2,600 round-figure mark. The latter should act as a key pivotal point, which if broken decisively might prompt some technical selling and pave the way for deeper losses.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.