Gold hovers near record high amid Fed rate cut bets, safe-haven buying
- Gold struggles to capitalize on a modest Asian session uptick to a fresh all-time peak.
- The USD buying and a positive risk tone cap the commodity amid overbought conditions.
- Fed rate cut bets, US government closure, and safe-haven buying should limit losses.
Gold (XAU/USD) retreats slightly after touching a fresh all-time peak during the Asian session on Tuesday, though any meaningful corrective slide seems elusive amid the supportive fundamental backdrop. The US Dollar (USD) trades with a positive bias for the second straight day, which, along with the underlying bullish sentiment, turns out to be a key factor acting as a headwind for the commodity. The USD uptick, however, lacks bullish conviction amid the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs two more times this year. This might continue to act as a tailwind for the non-yielding yellow metal.
Apart from this, the ongoing US government shutdown keeps demand for safe-haven Gold in play on the back of rising trade and geopolitical tensions, and should contribute to limiting the downside. That said, the XAU/USD bulls might wait for some near-term consolidation or a modest pullback before placing fresh bets amid still overbought conditions. Investors might also opt to wait for speeches from influential FOMC members, including Fed Chair Jerome Powell on Thursday, and FOMC Minutes on Wednesday. Nevertheless, the aforementioned factors suggest that the path of least resistance for the bullion remains to the upside.
Daily Digest Market Movers: Gold bulls retain control amid a supportive fundamental backdrop
- The US Dollar regains some positive traction following the previous day's late pullback from the vicinity of the late September swing high and keeps a lid on the precious metal's Asian session uptick to a fresh all-time high. The Nasdaq and the S&P 500 registered fresh record closing highs on Monday ahead of third-quarter earnings next week, which further contributes to capping the safe-haven Gold amid still overbought conditions.
- Traders have been pricing in the possibility of two more interest rate cuts by the US Federal Reserve this year, in October and December. The dovish outlook acts as a headwind for the USD and has been a key factor behind the recent record-setting run in the non-yielding yellow metal. Apart from this, concerns that a prolonged US government shutdown could potentially disrupt economic activity continue to lend support to the commodity.
- The US federal government remained shuttered for the sixth day on Monday, with the Senate struggling to reach consensus on a Republican-backed spending bill amid calls for the continuation of healthcare subsidies. US President Donald Trump said he was open to working with the Democrats on healthcare, but only if the government was allowed to reopen. Any furloughing of federal workers presents risks for the labor market and caps the USD.
- Ukraine said its long-range drones struck a major ammunition plant, an oil terminal, and a weapons depot deep inside Russian territory. The International Atomic Energy Agency reported on Monday that its team heard multiple rounds of incoming and outgoing shelling near Ukraine’s Zaporizhzhia nuclear power plant. Ukraine's President Volodymyr Zelenskyy accused the West of zero real reaction to Russia’s escalating bombing campaign.
- The first day of indirect talks between Israel and Hamas in Egypt, centered around Trump’s 20-point Gaza peace plan, ended on a positive note. The proposed peace initiative outlines a multi-phase roadmap, starting with a ceasefire and the release of all remaining hostages held by Hamas, and has gained broad international support. In exchange, Israel would release Palestinian prisoners. According to reports, the discussion will continue on Tuesday.
- Nevertheless, geopolitical risks remain in play, which should further contribute to limiting any corrective pullback in the safe-haven commodity. Traders now look forward to speeches from influential FOMC members, including Fed Chair Jerome Powell's appearance on Thursday. Apart from this, FOMC Minutes on Wednesday could offer more cues on interest rate cuts, which would drive the USD and provide a fresh impetus to the XAU/USD pair.
Gold needs to consolidate amid overbought daily RSI; breakout above $3,900 remains in play
The overnight breakout through the $3,900 mark was seen as a fresh trigger for bulls and backs the case for an extension of the recent well-established uptrend for the Gold price. However, the daily Relative Strength Index (RSI) on the daily chart is holding well above the 70 mark and points to extremely overbought conditions. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains.
Meanwhile, any corrective slide below the $3,950 area could be seen as a buying opportunity and is likely to remain limited near the $3,900 round figure. The latter nears the 100-hour Simple Moving Average (SMA), which, if broken, might prompt some technical selling and drag the Gold price to the next relevant support near the $3,865-3,863 area. The downfall could extend further towards testing sub-$3,800 levels touched last Tuesday, which should act as a strong near-term base and key pivotal point.
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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