Gold price hangs near three-week low, manages to hold above $2,600 mark
- Gold price trades with a negative bias for the sixth straight day amid smaller Fed rate cut bets.
- Hopes of a possible Hezbollah-Israel ceasefire further undermine the safe-haven commodity.
- Traders now look to the FOMC minutes for short-term impetuses ahead of the US inflation figures.
Gold price (XAU/USD) fell nearly 1.5% intraday and touched a three-week low on Tuesday, albeit found some support ahead of the $2,600 round-figure mark. The US Dollar (USD) hovered near a seven-week high amid reduced bets for another oversized interest rate cut by the Federal Reserve (Fed), which turned out to be a key factor that undermined demand for the non-yielding bullion. Apart from this, news of a possible ceasefire between Lebanon's Hezbollah and Israel weighed heavily on the safe-haven precious metal and dragged it below a short-term trading range support near the $2,630 area.
The downfall, however, stalled ahead of the $2,600 mark as traders opt to wait for the release of the minutes of the September FOMC policy meeting, due later this Wednesday. Apart from this, the US Consumer Price Index (CPI) and the US Producer Price Index (PPI) on Thursday and Friday, respectively, will be looked upon for fresh cues on the interest rate outlook. This, in turn, will play a key role in determining the next leg of a directional move for the Gold price. In the meantime, subdued US Dollar (USD) price action might hold back bears from placing fresh bets and limit losses for the XAU/USD.
Daily Digest Market Movers: Gold price continues to be undermined by reduced bets for a 50 bps Fed rate cut in November
- The US Dollar held steady near a multi-week top touched last Friday amid diminishing odds for a more aggressive policy easing by the Federal Reserve, which dragged the Gold price below the $2,630 pivotal support on Tuesday.
- According to the CME Group's FedWatch Tool, investors are now pricing in over an 85% chance of a 25-basis-points Fed rate cut move at the November meeting and a 50 bps reduction in borrowing costs by the end of this year.
- New York Fed President John Williams said on Tuesday that it will be appropriate again to bring interest rates down over time and that September's 50bps rate cut should now be seen as the rule of how we act in the future.
- Separately, Fed Governor Adriana Kugler said that approach to any policy decision will continue to be data dependent and that he will support additional rate cuts if progress on inflation continues as expected.
- Furthermore, Boston Fed President Susan Collins noted that current monetary policy is helping to cool inflation, but the US economy and labor markets still appear strong, and core inflation still remains elevated.
- Meanwhile, Fed Vice Chair Philip Jefferson said that economic activity continues to grow at a solid pace, while inflation has eased substantially and the labor market has cooled from its formerly overheated state.
- The yield on the benchmark 10-year US government bond holds steady above the 4% threshold, which continues to exert some pressure on the non-yielding bullion for the sixth successive day on Wednesday.
- On the geopolitical front, Iran-backed Hezbollah hinted on Tuesday that it may be open to a ceasefire and notably omitted the end of the Gaza war as a condition for halting the conflict on the Lebanon-Israel border.
- Investors now look to the September FOMC meeting minutes for cues about the future rate-cut path, ahead of the US consumer inflation figures and the US Producer Price Index on Thursday and Friday, respectively.
Technical Outlook: Gold price confirms a short-term trading range breakdown; bears await weakness below the $2,600 mark
From a technical perspective, the overnight breakdown through the $2,630 support, or the lower boundary of a short-term trading range, could be seen as a fresh trigger for bearish traders. That said, oscillators on the daily chart – though have been losing traction – are yet to confirm a negative bias. Hence, it will be prudent to wait for some follow-through selling and acceptance below the $2,600 mark before positioning for further losses. The Gold price might then extend the corrective slide towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region and the $2,500 psychological mark.
On the flip side, the trading range support breakpoint, around the $2,630-2,635 region, now seems to act as an immediate hurdle. Any subsequent move up could be seen as a selling opportunity and remain capped near the $2,657-2,658 horizontal barrier. A sustained strength beyond has the potential to lift the Gold price to the $2,670-$2,672 supply zone, above which bulls might aim to challenge the all-time high, around the $2,685-2,686 zone touched in September. This is closely followed by the $2,700 mark, which if cleared will set the stage for an extension of a well-established multi-month-old uptrend.
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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