- Gold price attracts some safe haven flows amid risk-off sentiment and tensions in the Middle East.
- A modest drop in the USD further benefits XUA/USD, although the upside appears limited.
- Expectations of smaller rate cuts from the Fed should limit USD losses and hold back the yellow metal.
The price of Gold (XAU/USD) rises for the second day in a row on Wednesday, also marking the fourth day of a positive move in the last five, and hits a one-and-a-half-week high around the $2,670 region during the Asian session. The pullback in US Treasury yields drags the US Dollar (USD) down from a more than two-month high touched earlier this week and turns out to be a key factor supporting the commodity. Additionally, a shift in global risk sentiment – ​​as shown by a weaker tone in global equity markets – is driving some safe-haven flows into the precious metal amid lingering geopolitical risks.
Added to this is the high demand from central banks, which offers additional support to the price of Gold. That said, expectations of a less aggressive easing policy by the Federal Reserve (Fed) and bets on a regular cut Rates of 25 basis points (bp) in November should limit any significant USD correction. This, in turn, could restrain bulls from opening new positions around the non-performing yellow metal. Additionally, reports that Israel will refrain from attacking Iran’s oil and nuclear sites could help limit XAU/USD’s gains, warranting some caution before positioning for any additional near-term bullish moves.
Daily Market Summary: Gold Price Benefits from Softer Risk Tone and Modest USD Drop
- U.S. Treasury yields fell for a second day on Tuesday as traders reacted to weaker-than-expected manufacturing data and declining inflation risks due to falling oil prices, which boosted the demand for Gold without yield.
- The New York Federal Reserve’s Empire State Manufacturing Index fell after rising to a 29-month high in September, to -11.9 in October, marking the weakest reading since May and indicating deteriorating conditions.
- Easing fears of a supply disruption, coupled with a weaker demand outlook, are dragging crude oil prices to a two-week low, which is expected to reduce inflationary pressures and allow the US central bank to ease inflationary pressures. US cut interest rates further.
- However, markets are pricing in a greater possibility of a smaller rate cut at the next FOMC policy meeting in November, which should support the US dollar and limit any further gains for the XAU/USD.
- Meanwhile, San Francisco Fed President Mary Daly noted Tuesday that the U.S. central bank has made significant progress in reducing inflation and sees one or two more rate cuts this year if economic forecasts are met.
- Separately, Atlanta Fed President Raphael Bostic said he sees no strong signs of a possible recession on the horizon as the U.S. economy continues to perform well and inflation heads back toward 2 %.
- On Tuesday, Israeli Prime Minister Benjamin Netanyahu rejected the idea of ​​a ceasefire in Lebanon, while the militant group Hezbollah threatened to expand its attacks, raising the risk of further escalation of the conflict.
- The Biden administration has warned Israel that it faces possible sanctions, including the possible halting of US arms transfers, if it does not take immediate steps to allow more humanitarian aid in Gaza.
- The market’s attention will be on the US economic releases – Monthly Retail Sales, Industrial Production and the usual Weekly Initial Jobless Claims – and the Chinese macroeconomic data due out later this week.
Technical Outlook: The price of Gold seems ready to surpass the historical peak and reach $2,700
From a technical perspective, any further move higher will likely face some resistance near the $2,685-2,686 region, or the all-time peak touched in September. This is closely followed by the round $2,700 mark, which if broken decisively, will set the stage for an extension of a well-established multi-month uptrend amid positive oscillators on the daily chart.
On the other hand, immediate support lies near the $2,650 area, below which the Gold price could slide to the $2,632-2,630 region. Any further decline will likely attract some buyers and remain capped near the round $2,600 mark. The latter should act as a key pivot point, which if broken decisively, could spark some technical selling and pave the way for deeper losses.
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.
