Gold losses altitude as peace hopes meet hawkish Fed bets
- Gold fades from $4,376 as Treasury yields climb.
- Fed officials keep further tightening firmly on the table.
- US-Iran diplomacy reduces haven demand as Oil prices soften.
Gold (XAU/USD) price retreats from daily highs of $4,376 on Tuesday as US Treasury yields rise and the US Dollar continues to strengthen, with investors pricing in further Federal Reserve (Fed) tightening towards year-end. At the time of writing, XAU/USD trades at $4,337, down 0.14%.
XAU/USD retreats as rising yields and stronger Dollar curb haven demand
Sentiment turned optimistic as US President Donald Trump announced that US and Iranian delegations met in what he called a very productive meeting. On the Russia-Ukraine war, Trump said that he and Ukrainian President Volodymyr Zelenskyy are figuring out a way to end the conflict and added that Putin is willing to meet to end the war.
Bullion prices remained pressured following the Federal Reserve’s decision to increase rates last week, which triggered a cascade of hawkish comments by several policymakers.
Richmond Fed President Thomas Barkin said inflationary pressures will take some time to ease, adding that additional rate hikes may be needed to push prices toward the Fed’s 2% goal.
Earlier, Boston Fed President Susan Collins said she supported a rate hike and warned of elevated inflation risks, noting “an increased likelihood of future scenarios in which inflation remains notably above 2%.”
In the meantime, energy prices have edged lower since the beginning of the week, amid increasing hopes for an end to the US-Iran conflict.
Despite this, money markets continue to price in a 53% chance of a 25-basis-point rate hike by the Fed at the October 28 meeting. However, for the December meeting, the chances remain higher, at 90%, according to Prime Terminal.
The US 10-year Treasury yield rises by more than 1.6 basis points to 4.97%, a signal that investors expect the Fed to tackle inflation. Consequently, the US Dollar Index (DXY), which tracks the performance of the American currency against its peers, is up 0.17% to 100.59.
Even though the yellow metal fares well as an inflation hedge, it fails to gain traction amid high-interest-rate scenarios.
US data featured the ADP Employment Change 4-week average, which came in at 20K, up from the previous print of 16.75K.
Later in the week, the US economic schedule will feature S&P Global Flash PMIs, jobless claims, the University of Michigan Consumer Sentiment, and further Fed speakers.
XAU/USD technical outlook: Gold remains subdued inside a ‘bullish wedge’
Price action shows Gold drifting lower inside a ‘bullish wedge’, which could propel the yellow metal, initially towards the 200-day Simple Moving Average (SMA) at $4,541. But first, buyers must clear a downslope resistance trendline near $4,382 before testing $4,400. Up next lie key psychological levels like $4,450 and the $4,500 mark.
On the downside, XAU/USD's first support is the 100-day SMA at $4,316. If decisively cleared, it exposes the 50-day SMA at $4,301, before Bullion tumbles below the $4,300 mark. On further weakness, the next support is September’s 16 low of $4,235, ahead of $4,200.
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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