Gold falls almost half a percent on Wednesday

• Gold retreats after Tuesday’s recovery due to increased geopolitical risk stemming from Iran’s escalation in the Middle East.
• The macroeconomic backdrop remains positive, however, with falling interest rates globally making Gold shine.
• Technically, XAU/USD consolidates, providing a “buy the dip” opportunity for bulls.

Gold (XAU/USD) drops on Wednesday to trade in the $2,650 per troy ounce area as traders do some selling and buying after Tuesday’s more than 1.0% rally. Instability in the Middle East was the main driver of the previous day’s rally after Iran launched about 200 missiles, some of which were ballistic, at Israel’s capital, Tel Aviv.

That, and the fact that interest rates are falling globally, continue to support the precious metal, which continues to trade just below its new all-time high of $2,685. Lower interest rates increase the attractiveness of non-interest-bearing gold as a portfolio item for investors.

Gold faces volatility due to change in the outlook for US rates

Gold has seen volatility over the past week due to a rapid change in the outlook for US interest rates, which has also impacted the strength of the US Dollar (USD), another factor driving valuations.

The precious metal rose last week as bets that the Federal Reserve (Fed) would cut interest rates by another 50 basis points (0.50%) at its November meeting reached a fever pitch. Expectations that the bank would cut rates further also weighed on the USD, adding momentum to the yellow metal’s rise.

However, unexpectedly strong data, especially on the fragile US labor market, and a cautious speech from Fed Chair Jerome Powell on Monday have since reduced bets on a 50 basis point cut, from up from more than 60% last week to just 37% at press time on Wednesday.

Gold will rise according to several analysts from large banks

Gold has already gained more than 28% in 2024 and has reached new all-time highs, but several big bank analysts predict that the bullish trend is not over for the precious metal, especially in the medium and long term, according to Kitco News.

Goldman Sachs said in a note on Monday that it is revising upward its gold forecasts from $2,700 to $2,900 by early 2025.

“We reiterate our recommendation to hold gold due to the gradual momentum of lower interest rates globally, structurally higher demand from central banks and the hedging benefits of gold against geopolitical, financial and recession risks,” the bank.

In a recent interview with Bloomberg News, Joni Teves, Precious Metals Strategist at Swiss bank UBS, was also bullish on Gold.

“From a broader perspective, I think the macroeconomic backdrop is favorable for Gold. The fact that real rates are coming down, the Fed is in easing mode. From a fundamental point of view, we think physical demand is also quite resilient, even at higher gold prices,” Teves said.

“The official sector (central banks) continues to add to Gold reserves, and positioning allows for more Gold allocations to accumulate over time. I think that remains the case, and the risk here is that, because the market has not been providing many corrections, people will have to continue chasing the move higher,” he added.

The UBS strategist dismissed concerns that long gold derivatives positioning on exchanges could risk a prolonged market correction.

“There has been an increase in short-term positions,” he responded. “But actually, if you look at the historical data, we are not at all-time highs yet, and the overall market positioning, in our view, is not stretched yet.”

Asked if UBS saw investors continuing to buy the dips, Teves said he hopes they do because many who waited on the sidelines during the recent rapid recovery are still looking for an entry.

Technical Analysis: Gold follows the 50 SMA to the upside

Gold pulls back to the 50-period SMA on the 4-hour chart for the second time this week. The correction comes after Tuesday’s bounce from the low of $2,625.

The short-term trend is unclear after the fairly deep drop seen on Friday and Monday. A break above the October 1 high at $2,673 would likely see a continuation back to the $2,680 area and all-time high region. A break above that would likely lead to a continuation to the round number target at $2,700.

XAU/USD 4-hour chart

In the medium to long term, Gold remains in an uptrend and since it is a fundamental principle of technical analysis that “the trend is your friend”, the odds favor an upward resumption eventually, once the current period of consolidation has passed. finished.

A break below the trend line around $2,615-$2,620, however, would be a bearish signal and suggest a complete reversal of the short-term uptrend.

(This story was corrected on October 2 at 09:55 GMT to say, in the headline, that the price of Gold falls on Wednesday after Tuesday’s rally.)