Gold tumbles below $4,200 on higher oil prices, firmer US Dollar
- Gold price slumps to near $4,170 in Tuesday’s early Asian session.
- Oil-driven inflation concerns and tighter monetary-policy expectations weigh on the Gold price.
- Robust inflows into gold-backed exchange-traded funds and accelerated purchases by the PBoC could underpin precious metal.
Gold price (XAU/USD) falls to around $4,170 during the early Asian session on Tuesday. The precious metal retreats from a one-week high on a stronger US Dollar (USD) and higher crude oil prices. Traders await the key US inflation data later this week for more clues on the Federal Reserve's (Fed) interest-rate trajectory.
Oil prices jump to a two-week high amid hopes of a Russia-Ukraine energy ceasefire and a new round of Houthi attacks in Saudi Arabia. These developments raise inflation concerns, prompting central bank tightening. Gold is often used as an inflation hedge but pays no interest, making it less attractive when interest rates are high.
“The macro backdrop remains challenging as persistent inflationary pressures continue to keep additional Fed tightening on the table, supporting Treasury yields and maintaining pressure on real rates,” said Manav Modi, a commodities analyst at Motilal Oswal Financial Services Ltd.
On the other hand, rising demand might help limit the yellow metal’s losses. Inflows into gold-backed ETFs have reached a four-year high, according to data compiled by Bloomberg. Additionally, the Chinese central bank added 740,000 ounces to its reserves in September, extending its buying streak to 23 consecutive months.
Gold gains as CTAs cover shorts and TD Securities eyes bull run into 2027
According to strategists at TD Securities, commodity trading advisors are now “covering shorts across gold and platinum as strong fundamental backdrop for precious metals insulates the market.” The bank notes that “the yellow metal is gaining on the day with CTAs back on the bid, covering shorts by some 7% of historic max position size,” underscoring a meaningful shift in positioning. TD Securities argues that “geopolitical risk, fiscal concern, dollar debasement, de-dollarization and stagflation concerns all remain major supportive factors for these flows in gold,” and concludes that “we continue to see the stage being set for the yellow metal to disconnect from real rates further and begin a new bull run into 2027.”
Technical Analysis: Gold retains a negative tone below the 100-day SMA
In the daily chart, XAU/USD keeps a bearish near-term tone as spot holds beneath the 20-day Bollinger middle band and the 100-day simple moving average (SMA). This alignment leaves gold locked below its primary trend gauges, while the Relative Strength Index (RSI) at 43.73 leans lower, suggesting downside pressure persists but without oversold conditions.
On the topside, initial resistance is located at the Bollinger middle band near $4,225, followed by the 100-day SMA at $4,255; a daily close above these barriers would be needed to ease the current downside bias, with the upper Bollinger band at $4,400 acting as a more distant cap. On the downside, the lower Bollinger band at $4,055 offers the next notable support, and a break below that zone would open the door to a deeper corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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