- The price of Gold attracts buyers on Wednesday and moves away from the weekly low.
- Lower US bond yields keep USD bulls on the defensive and lend some support to XAU/USD.
- Recession fears and geopolitical risks appear to benefit the safe-haven yellow metal.
- Prospects for further tightening of monetary policy from the Fed limit XAU/USD’s gains.
The price of Gold (XAU/USD) attracts some buyers on Wednesday and moves away from the weekly low, around the $1,954-$1,953 area touched the previous day. The precious metal is trading with a slight positive bias above the $1,970 level at the start of the European session and, for now, appears to have halted its recent pullback from close to the psychological $2,000 level, a five-month high. played last Friday.
Lower US Treasury yields are not helping the US Dollar (USD) capitalize on the previous day’s strong bounce, which in turn is seen benefiting the non-yielding yellow metal. Aside from this, the looming risk of recession, fueled by a flurry of weaker economic data from Europe on Tuesday, coupled with the Middle East conflict, turns out to be another factor lending some support to safe-haven Gold. The precious metal had risen more than 8% in the past two weeks on concerns that the war between Israel and Hamas could spread to other Middle Eastern countries and affect the global economy.
That said, the prospects of a new tightening of the monetary policy of the Federal Reserve (Fed) restrain the bulls from opening aggressive positions and limit the increases in the price of Gold. Traders also seem reluctant and prefer to wait for the speech of the president of the Fed, Jerome Powell, during the American session. Meanwhile, attention remains focused on Friday’s US Core PCE Price Index, which could provide a significant boost to the yellow metal.
Daily summary of market drivers: The price of Gold rises due to the problems in the Middle East and the drop in bond/USD yields.
- Gold price is attracting some buyers following the decline in US Treasury yields, which keeps dollar bulls on the defensive, and geopolitical risks.
- World leaders advocated for a pause or cessation of hostilities between Israel and Hamas so that humanitarian aid could reach the besieged Gaza Strip.
- The benchmark 10-year US Treasury yield is moving away from its 16-year high after crossing the symbolic 5% level for the first time since 2007.
- Business activity in the Eurozone unexpectedly worsened and revived recession fears, further benefiting the safe-haven XAU/USD.
- The U.S. manufacturing sector emerged from a five-month contraction and services activity accelerated modestly, pointing to a still resilient economy.
- The Fed is expected to maintain the status quo in November, although markets are pricing in the possibility of a more than 25 basis point hike by the end of the year.
- Investors are now awaiting Fed Chairman Jerome Powell’s speech for clues about the future path of rate hikes, which, in turn, should give new impetus to the yellow metal.
- Attention will also focus on the US flash Q3 GDP report and the European Central Bank (ECB) rate decision on Thursday, followed by the US PCE price index on Friday .
Technical Analysis: The price of Gold manages to stay above the weekly minimum set on Tuesday
From a technical point of view, any further bullish move is likely to face some resistance near the weekly high, around the $1,982-$1,983 area. Continuation buying should allow the price of Gold to make a new attempt to conquer the psychological level of $2,000. The subsequent bullish move has the potential to lift XAU/USD towards the next relevant hurdle near the $2,022 area.
On the opposite side, the $1,964 level now appears to protect the immediate decline before the weekly low, around the $1,953-$1,952 area touched on Tuesday. The latter represents a strong horizontal level and should act as a fundamental point, below which the price of Gold could return to the 200-day SMA, currently fixed near the $1,932-$1,931 region.
Frequently asked questions about Gold
Why invest in Gold?
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, aside 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.
Who buys more Gold?
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 Turkey are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
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.
What does the price of Gold depend on?
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.
