Gold edges lower within range as China outlook weighs

• Gold is edging lower within its range as markets revise down their outlook for China, the world’s largest consumer of Gold. 
• The precious metal is supported by ETF flows and haven demand amid raised geopolitical tensions.  
• Technically, XAU/USD breaks through a trendline as it extends its narrow range-bound market mode.  

Gold (XAU/USD) exchanges hands in the $2,630s on Tuesday as the yellow metal edges lower within the familiar $50 range of recent weeks. Disappointment at the limited extent of fiscal stimulus announced by China on Tuesday is pushing Gold lower, since China is the world’s largest consumer of the precious metal. 

Reduced chances that the Federal Reserve (Fed) will cut interest rates by another double-dose 50 basis points (bps) (0.50%) at its next meeting in November is further weighing on Gold. The increasing probability that the Fed will only cut by 25 bps(0.25%), or even that it may not cut at all, is a headwind for Gold because it suggests the opportunity cost of holding the non-interest-paying asset will remain higher than previously expected. 

Gold underpinned by ETF flows, haven demand

Gold may see downside limited, however, as data points to high demand for Gold-backed Exchange Traded Funds (ETF), which enable investors to buy shares in Gold rather than purchasing bullion itself. Net ETF inflows have risen significantly during the summer, and this is often taken as a strong indicator of future demand trends. 

In August, “Global physically-backed Gold ETFs added $2.1bn,” said the World Gold Council (WGC), thereby “extending their inflow streak to four months.”  

This follows July, when Gold ETFs attracted $3.7 billion, the highest inflows since April 2022. 

Gold also continues to provide an attractive safe-haven amid rising geopolitical tensions. On Tuesday, Israel stepped up its attacks on targets in Lebanon after a Hamas bombing in southern Israel. Israeli forces further claimed to have killed a leading Hezbollah member in charge of budgeting and logistics. 

In response to the relentless onslaught, which has claimed many of the group’s most senior figures, deputy leader of the group Naim Qassem said the conflict between Hezbollah and Israel “was a war about who cries first, and that Hezbollah would not cry first,” according to Reuters. He further added that Hezbollah’s capabilities were still intact. 

Markets are also on tenterhooks anticipating a retaliatory attack by Israel on Iran for its ballistic rocket raid last week. 

The overall trend lower in global interest rates – notwithstanding the recalibration of their trajectory in the US – puts a further floor under Gold price as it increases Gold’s attractiveness as a portfolio asset. 

Technical Analysis: Gold breaks below trendline

Gold breaks below an important trendline as it continues unfolding within a narrow sideways range. The range has a ceiling at around $2,673 (October 1 high) and a floor at $2,632 (October 4 low).  

XAU/USD Daily Chart

The short-term trend is sideways, and given the technical analysis principle that “the trend is your friend,” it is more likely than not to endure with price oscillating between the aforementioned poles.

A break above $2,673 would increase the odds of a resumption of the old uptrend, probably leading to a continuation up to the round-number target at $2,700. 

A break below $2.632 would lead to a move down to at least the swing low of $2,625 (September 30 low). A break below that level would likely see prices give way to support at $2,600 (August 18 high, round number). 

On a medium and long-term basis, Gold remains in an uptrend, with the odds favoring an eventual resumption higher once the current period of consolidation has ended. 

It would require a breakout either above the top of the range or below the bottom to confirm a new directional bias.