- Gold price regains positive traction after overnight pullback from all-time peak.
- Political uncertainty in the US and tensions in the Middle East support the safe-haven XAU/USD.
- The loose monetary policy environment offsets the rise in US bond yields and remains favorable.
The price of gold (XAU/USD) attracts some buying during the Asian session on Tuesday and remains close to a new record high, around the $2,740-2,741 area touched the previous day. Uncertainty surrounding the US presidential election on November 5, along with the risk of broader conflict in the Middle East and expected interest rate cuts by major central banks, continue to offer some support to the precious metal of safe haven.
Meanwhile, the US dollar (USD) remains firm near its highest level since early August amid the recent rise in US Treasury yields, driven by bets of a rate cut lower by the Federal Reserve (Fed) in November. This, coupled with slightly overbought conditions on the daily chart, could prevent traders from opening new bullish positions on the price of gold and limit gains in the absence of relevant market-moving US economic data.
Daily Market Drivers Summary: Gold Price Continues to Draw Support from a Combination of Factors Despite Bullish USD
- A projectile crossed from Lebanon and landed in an open area in central Israel, as the latter warned of further attacks on Hezbollah after targeting the Iran-backed group’s financial operations.
- The European Central Bank cut interest rates for the third time this year last week, marking the first consecutive cut in 13 years, and plans more cuts amid an economic downturn.
- Weak UK inflation data solidified bets on more aggressive rate cuts by the Bank of England and the Federal Reserve is also anticipated to further reduce borrowing costs.
- Opinion polls indicate that Vice President Kamala Harris and former President Donald Trump remain tied in a close race as the US presidential election on November 5 approaches.
- Meanwhile, growing concerns that a Donald Trump victory could trigger the imposition of more potentially inflation-causing tariffs sparked an overnight sell-off in US government debt.
- Furthermore, markets have completely discounted the possibility of another massive rate cut by the Fed in November, sending US Treasury yields to near three-month highs.
- The US dollar maintains its recent strong gains to the highest level since early August, although it does little to affect the strong underlying bullish sentiment around the price of gold.
- Traders now await the release of the Richmond Manufacturing Index, which, along with Philadelphia Fed President Patrick Harker’s speech, could provide some boost to XAU/USD.
Technical Outlook: Gold Price Could Stop Near Short-Term Uptrend Channel Resistance Near $2,750 Zone
From a technical perspective, the recent upward movement seen over the past two weeks or so has been along an ascending channel. This points to a well-established short-term uptrend and supports the prospects of a move towards challenging the trend channel resistance, currently situated near the $2,750 region. That said, the Relative Strength Index (RSI) on the daily/4-hour charts shows slightly overbought conditions and warrants some caution. Therefore, it will be prudent to wait for a short-term consolidation or modest pullback before traders begin positioning for the next move higher.
Meanwhile, any corrective slide now appears to find some support near the $2,720 region. This is closely followed by the lower end of the aforementioned channel, currently situated near the $2,710 area, which if broken decisively should pave the way for deeper losses. The subsequent decline could drag the gold price below the $2,700 level, towards the support at $2,685. The latter should act as a fundamental point, below which XAU/USD could accelerate the decline towards the resistance breakout point of $2,662-2,661, now converted into support.
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.
