Gold climbs to over two-week high as economic concerns reaffirm Fed rate cut bets
- Gold attracts some follow-through positive traction amid bets for more rate cuts by the Fed.
- Economic concerns stemming from the US government shutdown also benefit the commodity.
- The upbeat market mood and a modest USD uptick do little to dent the XAU/USD bullish tone.
Gold (XAU/USD) is seen building on the previous day's breakout momentum above the $4,100 mark and gaining some follow-through traction for the third consecutive day on Tuesday. This also marks the fourth day of a positive move in the previous five and lifts the commodity to a two-and-a-half-week high, around the $4,141-4,142 region, during the Asian session. Worries about the potential economic fallout from the longest-ever US government shutdown, along with expectations for another rate cut by the US Federal Reserve (Fed) in December, continue to underpin the precious metal.
The supporting factors, to a larger extent, offset a positive development towards reopening the US government, which boosts investors' confidence and provides an additional boost to the global risk sentiment. Even a modest US Dollar (USD) uptick does little to dent the bullish sentiment surrounding the Gold, suggesting that the path of least resistance for the bullion remains to the upside. However, relatively thin trading conditions on the back of a holiday in the US might hold back the XAU/USD bulls from placing aggressive bets ahead of speeches from influential FOMC members later this week.
Daily Digest Market Movers: Gold retains bullish bias as Fed rate cut bets offset hopes for an end to US shutdown
- The Senate late on Sunday reached a compromise and moved forward on a measure aimed at ending the longest US government shutdown in American history that began on October 1. Investors keenly await the expected flood of delayed data to shed more light on growth amid fears about an economic fallout from the US government closure.
- In fact, the University of Michigan's Survey showed on Friday US Consumer Sentiment Index slumped to 50.3 in November, or the lowest level since June 2022, from the previous month's final reading of 53.6. Moreover, investors seem tilted towards a more dovish US Federal Reserve, which continues to lend support to the non-yielding Gold.
- According to the CME Group's FedWatch Tool, markets now see an over 60% chance of another rate cut by the Fed in December. This, in turn, fails to assist the US Dollar in attracting any meaningful buyers and favors the XAU/USD bulls. However, the risk-on environment warrants some caution before positioning for a further appreciating move.
- US banks will be closed on Tuesday in observance of Veterans Day, leaving the USD and the commodity at the mercy of Fed rate cut expectations. Hence, speeches from influential FOMC members on Wednesday will be looked for more cues about the Fed's future rate-cut path, which should provide a fresh impetus to the non-yielding yellow metal.
Gold bullish technical setup backs the case for additional gains; move beyond $4,155-4,160 awaited
From a technical perspective, the XAU/USD pair now seems to have found acceptance above the 50% retracement level of the recent sharp corrective decline from the all-time peak, touched in October. This, along with positive oscillators on the daily chart, validates the near-term positive outlook for the Gold price. Some follow-through beyond the $4,155-4,160 area will reaffirm the bullish bias and allow the bullion to aim towards reclaiming the $4,100 round figure. The said handle nears the 61.8% Fibonacci retracement level, which, if cleared decisively, would set the stage for additional gains.
On the flip side, the Asian session low, around the $4,115 region, closely followed by the $4,100 round figure and the $4,075 region (38.2% Fibo. retracement level), now seems to protect the immediate downside. Failure to defend the said support levels might prompt some technical selling and drag the Gold price to the $4,025 region en route to the $4,000 psychological mark. A convincing break below the latter might shift the near-term bias in favor of bearish traders and make the XAU/USD pair vulnerable to accelerate the fall towards the $3,936-3,935 region before eventually dropping to the $3,900 round figure.
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.
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