- The price of gold remains confined to a narrow fluctuation band, although the fall seems to be supported.
- Expectations of another 50bp rate cut by the Fed in November are keeping the USD capped and supporting XAU/USD.
- Geopolitical tensions are also acting as a tailwind ahead of speeches by influential FOMC members.
Gold (XAU/USD) price extends its sideways consolidation move for the second consecutive day on Thursday and remains well within striking distance of the all-time high reached the previous day. Traders are choosing to stay on the sidelines ahead of Federal Reserve (Fed) Chair Jerome Powell’s speech later today, which will be watched for clues on the pace of interest rate cuts going forward. This, in turn, will play a key role in determining the next directional move for the non-yielding yellow metal.
Meanwhile, expectations of another large-sized interest rate cut by the US central bank fail to help the US Dollar (USD) capitalize on the previous day’s strong recovery from the proximity of the yearly low. Adding to this, rising tensions in the Middle East and concerns over China’s economic recovery despite the latest stimulus plans act as a tailwind for the safe-haven Gold price. That said, slightly overbought conditions on the daily chart warrant caution before positioning for any further upside move.
Market Drivers: Gold Price Bulls Await Fed Chairman Jerome Powell’s Speech Before Opening New Positions
- The US Dollar is struggling to consolidate Wednesday’s strong recovery gains amid dovish Federal Reserve expectations, which, in turn, continues to lend some support to the price of non-yielding Gold.
- Several Fed officials this week sought to push back against expectations for more aggressive easing, though markets are pricing in a 50-basis-point rate cut in November as more likely.
- Therefore, Fed Chair Jerome Powell’s speech later on Thursday will be closely watched for fresh clues on the future path of rate cuts and to determine the near-term trajectory of XAU/USD.
- US macroeconomic data – the final print of second-quarter GDP, the usual weekly initial jobless claims, durable goods orders – and speeches by other influential FOMC members should also provide some impetus.
- Meanwhile, the last bit of optimism generated by a new round of Chinese stimulus measures announced this week is fading amid doubts about their impact and concerns about a global economic downturn.
- Furthermore, investors remain concerned about the risk of further escalation of geopolitical tensions and wider conflict in the Middle East, providing support to the safe-haven precious metal.
Technical Outlook: Gold price could attract buyers on dips near $2,625, retracement of ascending channel
From a technical perspective, the Relative Strength Index (RSI) on the daily chart is showing overbought conditions and is preventing bulls from opening fresh positions. That said, this week’s breakout through a short-term ascending trend channel suggests that the path of least resistance for the gold price remains to the upside. Therefore, the range-bound price action could still be classified as a consolidation phase before the next bullish move.
Meanwhile, dips towards the breakout point of the ascending channel resistance, around the $2,625 region, could be considered a buying opportunity and remain limited near the $2,600 mark. A convincing break below the latter could trigger some technical selling and drag the gold price towards the $2,575 region en route towards the $2,560 area and the support-turned-resistance of $2,535-$2,530.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster 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 as it is not dependent on any particular 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 buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes 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 on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, 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.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears 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, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
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.
