- Gold price enters a bullish consolidation phase near the all-time high reached on Wednesday.
- Bets on further Fed rate cuts keep USD bulls on the defensive and support the commodity.
- Concerns over the US/China economic outlook and geopolitical risks also benefit XAU/USD.
Gold (XAU/USD) price regained positive traction on Thursday and moved back close to the all-time high reached the previous day in reaction to the Federal Reserve’s (Fed) decision to start the monetary policy easing cycle with a sizeable rate cut. Expectations of further rate cuts by the US central bank attracted fresh selling of US Dollar (USD) and proved to be a key factor that benefited the underperforming yellow metal.
Apart from this, concerns over a slowdown in the United States (US) and China, the world’s two largest economies, and lingering geopolitical risks provided an additional boost to the gold price. That said, the risk-on rally in global equity markets capped any further upside for the safe-haven XAU/USD and led to range-bound price action during the Asian session on Friday.
Nevertheless, Gold price, at current levels, remains on track to end in the green for the second consecutive week. Moreover, the fundamental backdrop seems to be tilting in favour of bullish traders and supports the prospects of an extension of the commodity’s well-established uptrend. Traders now look forward to the crucial policy update from the Bank of Japan (BoJ), which could infuse volatility and provide some impetus to the XAU/USD.
Daily Market Wrap: Gold Price Gets Support From Bearish USD, Persistent Geopolitical Risks
- The Federal Reserve’s sizable rate cut on Wednesday and the forecast for another 50 basis point drop in borrowing costs by the end of this year failed to help the US dollar capitalize on the post-FOMC recovery from the annual low.
- Additionally, Fed policymakers projected rates will fall to 3.4% in 2025, from a previous forecast of 4.1%, and to 2.9% in 2026, from a previous forecast of 3.1%, reviving demand for the price of gold on Thursday.
- USD bulls seem unimpressed by positive US macroeconomic data showing that Weekly Initial Jobless Claims fell to 219K in the week ending September 14, marking the lowest level since May and pointing to a resilient labor market.
- Adding to this, the Philadelphia Fed survey revealed that the current overall activity index for manufacturing jumped from a seven-month low of -7.0 in August to 1.7 in September, beating consensus estimates.
- Meanwhile, the Fed’s sizable rate cut fueled concerns about economic growth, which, along with lingering worries about a slowdown in China, proved to be another factor that benefited the safe-haven XAU/USD.
- In addition, geopolitical risks arising from tensions in the Middle East and the war between Russia and Ukraine act as a tailwind for the precious metal amid political uncertainty in the US ahead of the presidential elections in November.
- Apart from this, the fact that several Asian central banks and Russia are buying gold to reduce their dependence on the USD favours bullish traders and supports the prospects of a further bullish move in the near term.
Technical Outlook: Gold price could face resistance near the upper end of a short-term ascending channel
From a technical perspective, the $2,600 round-mark, or the all-time high set on Wednesday, could offer some resistance before the $2,613-$2,615 region. The latter represents the upper boundary of a short-term ascending trend channel extending from June and should act as a pivotal point. With oscillators on the daily chart holding comfortably in positive territory and still far from being in the overbought zone, a sustained strength beyond the said barrier will be seen as a fresh trigger for the bulls and will pave the way for a fresh short-term bullish move for the gold price.
On the other hand, the $2,551-$2,550 area now seems to protect the immediate downside before the $2,532-$2,530 horizontal resistance breakout point. Some continued selling could expose the $2,500 psychological mark, below which gold price could accelerate the decline towards the confluence of $2,476 – comprising the 50-day simple moving average (SMA) and the lower boundary of the channel. A convincing break below it will suggest that the XAU/USD has topped out in the near term, setting the stage for a drop towards the 100-day SMA, around the $2,412 region, en route towards the $2,400 mark.
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 order 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.
