- Gold prices are trading with a slight positive bias near the all-time high reached on Friday.
- Mounting bets on a 50bps rate cut by the Fed later this month continue to act as a tailwind.
- Bulls now await key central bank event risks this week before opening fresh positions.
Gold (XAU/USD) price is holding steady near the all-time high, around the $2,580 region during Monday’s Asian session amid relatively low trading volumes due to a holiday in China and Japan. Moreover, traders are choosing to wait on the sidelines ahead of key central bank event risks this week, especially the outcome of a two-day Federal Open Market Committee (FOMC) meeting. The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday, followed by the Bank of England (BoE) and Bank of Japan (BoJ) monetary policy meetings on Thursday and Friday, respectively.
Meanwhile, rising bets on more aggressive policy easing by the Fed, driven by signs of easing inflationary pressure in the United States (US), are keeping US Treasury bond yields depressed near the 2024 low. This, in turn, continues to weigh on the US Dollar (USD) and acts as a tailwind for the non-yielding Gold price. Apart from this, political uncertainty in the US ahead of the November elections and lingering geopolitical risks continue to support demand for the safe-haven precious metal. That said, the market optimism restrains bulls from opening fresh positions and should limit the commodity.
Daily Market Wrap: Gold price remains supported by dovish Fed-inspired USD selling bias
- Traders increased bets on a large interest rate cut by the Federal Reserve amid signs that US inflation is easing, continuing to act as a tailwind for the non-yielding yellow metal.
- According to the CME Group’s FedWatch tool, the current market assessment indicates a greater than 50% probability that the US central bank will cut borrowing costs by 50 basis points later this week.
- Expectations were boosted by softer US Consumer Price Index (CPI) and Producer Price Index (PPI) reports last week, which provided further evidence of easing inflationary pressures.
- The yield on the benchmark 10-year U.S. government bond is languishing near its lowest level since May 2023, while the U.S. dollar remains within striking distance of the annual low touched last month.
- Reports of a second assassination attempt on Republican presidential candidate Donald Trump at his golf club in Florida on Sunday continue to support demand for safe-haven bullion.
- The protracted war between Russia and Ukraine, coupled with increasing instability and the risk of further escalation of tensions in the Middle East, is proving to be another factor supporting the XAU/USD.
- However, bullish traders seem reluctant to open new positions and prefer to wait for the outcome of the expected FOMC monetary policy meeting on Wednesday before opening new positions.
- Investors this week will also take cues from monetary policy meetings of the Bank of England and the Bank of Japan, which could infuse volatility into markets and provide some impetus to the metal.
Technical Outlook: Gold price could stall near the upper boundary of the ascending channel around $2,600
From a technical perspective, the recent move higher along an ascending channel since June points to a well-established uptrend and supports prospects for further gains. That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought zone, warranting some caution for bullish traders. Therefore, any subsequent move higher is more likely to face stiff resistance and remain capped near the upper end of the ascending channel, currently situated near the round figure of $2,600. The said level should act as a key pivot point, which if decisively overcome will mark a fresh breakout and pave the way for further appreciation.
On the other hand, the $2,565-$2,564 zone now seems to protect the immediate downside ahead of the strong resistance breakout point of $2,532-$2,530. Any further decline is likely to attract fresh buyers and remain limited near the psychological $2,500 mark. However, some follow-through selling below the $2,485 region could make the gold price vulnerable to accelerate the decline towards the $2,470 horizontal support en route to the $2,464 confluence. The latter comprises the support of the ascending channel and the 50-day simple moving average (SMA), which if broken decisively could shift the near-term bias in favour of the bearish traders.
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.
