- XAU/USD falls to $2,646 after September inflation data suggests progress toward the Fed’s 2% target.
- The 10-year US Treasury yield falls five basis points, while the US Dollar Index falls 0.16% to 100.41.
- Geopolitical risks increase as Israel attacks Lebanon, but Gold fails to gain momentum as traders book profits.
Gold fell to a three-day low below $2,650 after the US Bureau of Economic Analysis (BEA) revealed that September inflation continued to move towards the Federal Reserve’s (Fed) target. Although this justified further easing by the Fed, the gold metal failed to gain traction as analysts speculated that traders were taking profits. XAU/USD is trading at $2,646, down almost 1%.
Previously, the BEA revealed that the Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) Price Index, is slightly closer to the central bank’s 2% target, based on August data. Meanwhile, core PCE rose by a tenth of a percentage point compared to July data.
Following the data, the yield on the 10-year US Treasury bond fell five basis points to 3.749%. Consequently, the Dollar fell as the US Dollar Index (DXY) fell 0.16% to 100.41.
After the data, the odds of a 50 basis point (bp) easing at the November meeting increased, according to the CME FedWatch tool.
Given the market reaction, it was expected that Gold prices could reach another all-time high. However, XAU/USD plunged below the September 26 daily low of $2,654, opening the door for a deeper pullback.
Other data revealed that the University of Michigan Consumer Sentiment for September improved in its final reading.
Apart from this, an escalation is looming in the Middle East conflict between Israel and Hezbollah. Israel claimed to have struck Hezbollah’s main headquarters in southern Beirut on Friday. An Israeli official said the government hopes not to proceed with a ground invasion of Lebanon, but would not rule it out.
Reuters revealed that Gold ETFs saw modest net inflows last week and have yet to fully contribute to Gold’s rally, although analysts expect more ETF activity in the coming months.
Daily Market Summary: Gold Price Falls as US Inflation Nears 2% Target
- US PCE in August stood at 2.2% year-on-year, down from 2.5% in the previous month and slightly below the consensus estimate.
- Core PCE increased modestly as expected, from 2.6% to 2.7% year-on-year for the same period.
- University of Michigan (UoM) Consumer Sentiment for September improved from 69.0 to 70.1. One-year inflation expectations fell from 2.8% to 2.7%, while five-year expectations rose from 3% to 3.1%.
- Market participants have fully priced in at least a 25bp rate cut from the Fed. However, the odds of a 50bp cut have dropped to 54.7%, from a 60% chance two days ago. , according to the CME FedWatch tool.
XAU/USD technical analysis: Gold price falls and remains around $2,650
The price of Gold reached an all-time high of $2,685 and remains biased upwards. However, buyers failed to reach new all-time highs, opening the door for a pullback. Short-term momentum favors sellers as the Relative Strength Index (RSI) breaks out of the overbought zone, heading towards the 60 mark.
If XAU/USD falls below $2,650, look for a test of the September 18 daily high at $2,600. The next key support levels to test will be the September 18 low of $2,546, followed by the 50-day SMA at $2,488.
Conversely, if XAU/USD extends its rally beyond the current yearly high (YTD) of $2,685, the next resistance would be the $2,700 mark. Next would be the $2,750 level, followed by $2,800.
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.
