Gold price bulls not ready to give up despite bets for smaller Fed rate cuts

Source Fxstreet
  • Gold price attracts some dip-buyers and stalls its decline from over a one-week top set on Monday.
  • Geopolitical risks drive some haven flows, though a bullish USD might cap gains for the commodity.
  • Signs of a slowdown in China – the biggest bullion consumer – could further weigh on the XAU/USD.

Gold price (XAU/USD) witnessed an intraday pullback from over a one-week high touched on Monday and finally settled in the red, snapping a two-day winning streak amid broad-based US Dollar (USD) strength. Investors have priced out the possibility of another oversized interest rate cut by the Federal Reserve (Fed) in November. This kept the US Treasury bond yields elevated, which pushed the buck to over a two-month top and drove flows away from the non-yielding yellow metal.

Adding to this, the disappointment over China's fiscal stimulus and weak inflation figures released over the weekend did little to evoke investors' confidence. This turned out to be another factor that undermined the Gold price and contributed to the decline. That said, geopolitical risks stemming from the ongoing conflicts in the Middle East assisted the safe-haven precious metal to stall its intraday slide and hold steady above the $2,640 level during the Asian session on Tuesday. 

Daily Digest Market Movers: Gold price draws support from geopolitical risks, smaller Fed rate cut bets to cap gains

  • The US Dollar shot to its highest level since August 8 on Monday amid growing acceptance of a less aggressive policy easing by the Federal Reserve and bets for a regular 25 basis points interest rate cut in November. 
  • Minneapolis Fed President Neel Kashkari said on Monday that the monetary policy is still restrictive and suggested that further modest interest rate cuts could be appropriate as the job market remains strong.
  • Fed Governor Christopher Waller noted that the economy is on solid footing, may not be slowing as much as desired, and that the central bank should proceed with more caution on rate cuts than at the September meeting.
  • The lack of numerical details for China's fiscal stimulus, along with signs of economic softness in the biggest bullion consumer, prompted some intraday selling around the Gold price on the first day of a new week. 
  • Israel vowed a forceful response to Hezbollah’s drone attack on its army base on Sunday, which killed four soldiers and severely wounded seven others, raising the risk of a further escalation of geopolitical tensions. 
  • This comes amid growing concern that Israel may mount an offensive against Iranian assets and a broader regional conflict in the Middle East, which offers some support to the safe-haven precious metal. 
  • Traders now look to the release of the Empire State Manufacturing Index, which, along with Fedspeak, should produce short-term trading opportunities around the XAU/USD later during the North American session. 

Technical Outlook: Gold price could aim to surpass the all-time peak touched in September and conquer the $2,700 mark

From a technical perspective, the overnight swing high, around the $2,666-2,667 region, now seems to act as an immediate hurdle. A sustained strength beyond has the potential to lift the Gold price back towards the all-time peak, around the $2,685-2,686 region touched in September. This is closely followed by the $2,700 round-figure mark, which if cleared decisively will set the stage for an extension of a well-established multi-month-old uptrend.

On the flip side, weakness below the $2,632-2,630 immediate support is likely to attract some buyers and remain limited near the $2,600 round-figure mark. Failure to defend the said handle will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to accelerate the fall towards the next relevant support near the $2,560 zone. The corrective slide could extend further towards the $2,535-2,530 region en route 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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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