Gold price extends the range play below record high, bulls not ready to give up yet
- Gold price struggles to attract any meaningful buying amid sustained US Dollar strength.
- Reduced bets for a 50 bps Fed rate cut in November lifted the USD to a multi-week high.
- Geopolitical risks continue to act as a tailwind for the XAU/USD ahead of the US data.
Gold price (XAU/USD) remains on the defensive during the Asian session on Thursday amid a stronger US Dollar (USD), which continues to draw support from diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). The upbeat US ADP report released on Wednesday pointed to the underlying stability in the labor market and forced investors to further scale back their bets for another oversized Fed rate cut in November. This, in turn, pushes the USD Index (DXY), which tracks the Greenback against a basket of currencies, to a three-week top and turns out to be a key factor undermining demand for the non-yielding yellow metal.
The downside for the Gold price, however, seems cushioned in the wake of a further escalation of conflicts in the Middle East. Iran launched over 200 ballistic missiles at Israel on Tuesday, while the latter conducted a precise air strike and bombed central Beirut in Lebanon during the early hours of Thursday. This raises the risk of a full-blown war in the region, which, in turn, may continue to act as a tailwind for the safe-haven precious metal. Meanwhile, traders may also refrain from placing aggressive directional bets and prefer to wait for the release of the closely-watched US monthly employment details – the Nonfarm Payrolls (NFP) report on Friday.
Daily Digest Market Movers: Gold price bulls remain on the sidelines amid stronger USD, geopolitical risks help limit losses
- The incoming stronger US labor market reports and the Federal Reserve Chair Jerome Powell's relatively hawkish remarks on Monday assist the US Dollar in prolonging its recovery move from the lowest level since July 2023.
- The US JOLTS Job Openings survey published on Tuesday showed that the number of available jobs unexpectedly jumped by 329K from an upwardly revised 7.711 million in the previous month to 8.040 million in August.
- Furthermore, Automatic Data Processing (ADP) reported on Wednesday that private-sector employers added 143K jobs in September against expectations for a rise of 120K and August's upwardly revised reading of 103K.
- This provided evidence of a still resilient US labor market and forced investors to reassess the likelihood of another 50-basis points interest rate cut by the US central bank at its next monetary policy meeting in November.
- Adding to this hopes that China's massive stimulus measures will ignite a lasting recovery in the world's second-largest economy and further act as a headwind for the safe-haven Gold price on Thursday.
- On the geopolitical front, an Israeli strike on central Beirut, Lebanon, early this Thursday comes after Iran fired more than 180 ballistic missiles at Israel on Tuesday, raising the risk of a full-out war in the Middle East.
- The mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the XAU/USD ahead of important US macro data, including the closely-watched Nonfarm Payrolls report on Friday.
- In the meantime, Thursday's US economic docket – featuring Initial Jobless Claims and ISM Services PMI – and speeches by influential FOMC members might produce short-term opportunities around the precious metal.
Technical Outlook: Gold price setup remains tilted in favor of bulls, the $2,625-2,624 throwback holds the key
From a technical perspective, the range-bound price action since the beginning of this week comes on the back of the recent strong rally to a record high and might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding comfortably in positive territory and have also eased from the overbought zone. This, in turn, favors bullish traders and suggests that the path of least resistance for the Gold price remains to the upside. Meanwhile, the $2,672-$2,673 area might continue to offer immediate resistance ahead of the $2,685-2,686 zone, or the all-time peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a fresh trigger for bulls and set the stage for an extension of a well-established multi-month-old uptrend.
On the flip side, the weekly low, around the $2,625-2,624 area, which coincides with a short-term ascending channel resistance breakpoint, might continue to offer support and act as a key pivotal point. A convincing break below might prompt aggressive technical selling and drag the Gold price below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the $2,535-2,530 support before the XAU/USD eventually drops to the $2,500 psychological mark.
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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