- Gold price attracts new sellers on Friday and comes under pressure from a modest rally in the USD.
- Expectations of smaller Fed rate cuts benefit the USD and put pressure on the XAU/USD.
- Geopolitical risks and political uncertainty in the US could lend support to the metal.
The price of gold (XAU/USD) moves lower during the Asian session on Friday and reverses some of the previous day’s positive movement, although it remains confined to the weekly range. With less than two weeks until the US presidential election on November 5, opinion polls point to a tight race for the White House. This adds a layer of political uncertainty which, along with tensions in the Middle East, could continue to act as a tailwind for the safe-haven precious metal.
The support factor is largely offset by the emergence of some dip buying in the US Dollar (USD), driven by strengthening expectations of less aggressive policy easing by the Federal Reserve (Fed). . In fact, traders have completely discounted the possibility of another big rate cut in November, as recent US macroeconomic data suggests the economy remains on solid footing. This, in turn, is seen propping up the Dollar and weighing on the price of non-performing gold.
Daily Market Summary: Gold Price Moves Down Despite Tensions in the Middle East and Political Uncertainty in the US
- The US dollar halts overnight decline from a near three-month high amid expectations of smaller rate cuts by the Federal Reserve and sparks fresh selling around the price of gold on Friday.
- Traders are no longer expecting another large interest rate cut from the Fed at its November policy meeting, as incoming US macroeconomic data suggests the economy remains on solid footing.
- This, along with concerns about deficit spending after the US presidential election, led to a sell-off in the US bond market and pushed the benchmark 10-year Treasury yield to a high. three months on Wednesday.
- The latest poll shows a close race between Vice President Kamala Harris and Republican nominee Donald Trump, which, along with geopolitical risks, could offer support to the safe-haven XAU/USD.
- Israel continued its military assault against Iran-backed Hezbollah in Lebanon and intensified a siege in northern parts of Gaza, raising the risk of a further escalation of tensions in the Middle East.
- Traders now look to Friday’s US economic docket, which includes the release of Durable Goods Orders and the revised Michigan Consumer Sentiment index, for near-term momentum heading into the weekend. .
Technical Outlook: Gold price appears to be forming a bearish head-shoulder pattern on the 4-hour chart
From a technical perspective, the recent price action over the past week constitutes the formation of a bearish head-shoulder pattern on short-term charts. The neck line support of the said pattern lies near the $2,705 region, which should now act as immediate strong support. Some follow-through selling, leading to a subsequent decline below the $2,700 level, should pave the way for further losses and drag the gold price towards the support at $2,675. The decline could extend further towards the target of the bearish pattern near the $2,660 area.
On the upside, the $2,640-$2,645 region now appears to have emerged as an immediate strong barrier. Meanwhile, sustained strength beyond will negate the shoulder-head-shoulder pattern and allow the gold price to aim to challenge the all-time peak, around the $2,658-2,659 zone touched earlier this week. The subsequent move higher could take XAU/USD towards the $2,770 area, which represents nearly four-month-old ascending trendline resistance, en route towards the round $2,800 mark.
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.
