- The price of Gold attracts some buyers on dips and stops its decline from the more than one-week high recorded on Monday.
- Geopolitical risks drive some safe-haven flows, although a bullish USD could cap the commodity’s gains.
- Signs of a slowdown in China, the largest consumer of bullion, could further weigh on the XAU/USD.
The price of Gold (XAU/USD) saw an intraday pullback from a more than one-week high hit on Monday and eventually closed in the red, snapping a two-day winning streak amid widespread US Dollar (USD) strength. . Investors have ruled out the possibility of another large interest rate cut by the Federal Reserve (Fed) in November. This kept US Treasury yields elevated, boosting the dollar to a more than two-month high and diverting flows of the yellow metal out of yield.
Added to this was disappointment over China’s fiscal stimulus and weak inflation figures released over the weekend, which did little to evoke investor confidence. This turned out to be another factor that undermined the price of Gold and contributed to the decline. That said, geopolitical risks stemming from the ongoing conflicts in the Middle East helped the safe-haven precious metal halt its intraday decline and hold above the $2,640 level during the Asian session on Tuesday.
Daily Market Summary: Gold Price Gains Support from Geopolitical Risks, Lower Fed Rate Cut Expectations Limit Gains
- The US dollar hit its highest level since August 8 on Monday amid growing acceptance of less aggressive policy easing by the Federal Reserve and bets on a regular 25 basis point interest rate cut in November.
- Minneapolis Fed President Neel Kashkari said Monday that monetary policy remains tight and suggested additional modest interest rate cuts could be appropriate as the labor 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 more cautiously in rate cuts than in the policy meeting. September.
- The lack of numerical details on China’s fiscal stimulus, along with signs of economic weakness in the largest bullion consumer, caused some intraday selling around the price of Gold on the first day of a new week.
- Israel promised a strong response to Hezbollah’s drone attack on its military base on Sunday, which killed four soldiers and seriously injured seven others, raising the risk of further escalation of geopolitical tensions.
- This comes amid growing concerns that Israel could mount an offensive against Iranian assets and a broader regional conflict in the Middle East, offering some support to the safe-haven precious metal.
- Traders now await the release of the Empire State Manufacturing Index, which, along with the Fed speeches, should produce short-term trading opportunities around XAU/USD later during the North American session.
Technical outlook: The price of Gold could aim to surpass the historical peak reached in September and reach the $2,700 mark
From a technical perspective, the overnight high, around the $2,666-2,667 region, now appears to act as an immediate hurdle. Sustained strength beyond that has the potential to lift the price of Gold back towards the all-time high, around the $2,685-2,686 region touched in September. This is closely followed by the round $2,700 mark, which if broken decisively, will set the stage for an extension of a well-established multi-month uptrend.
On the other hand, weakness below the immediate support of $2,632-2,630 will likely attract some buyers and remain limited near the round $2,600 mark. Failure to defend said level will be seen as a new trigger for the bears and will make the price of Gold vulnerable to accelerating the decline towards the next relevant support near the $2,560 area. The downward correction could further extend towards the $2,535-2,530 region en route towards the psychological mark of $2,500.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
