- The price of gold continues to attract safe haven flows amid political unrest in the US and troubles in the Middle East.
- A further rise in US bond yields reignites demand for the USD and caps the precious metal.
- Traders now await the release of the US PCE Price Index for a significant boost.
The price of gold (XAU/USD) is trading in a tight range during the Asian session on Thursday, consolidating its recent strong gains to an all-time high. The US Dollar (USD) attracts some buying on dips and, for now, appears to have halted its correction from a three-month high amid bets on a slower path of rate cuts by the Federal Reserve (Fed), backed by robust economic data. This, along with concerns over the growing US fiscal deficit, continues to push US Treasury yields higher and caps the upside of the non-yielding yellow metal due to slightly overbought conditions in the daily chart.
Traders also seem reluctant to open new bullish bets on the price of gold and choose to wait for the publication of the US personal consumption expenditure (PCE) price index. In addition to this, the non-farm payrolls report ( Friday’s US NFP will be closely watched for clues on the Fed’s interest rate outlook, which, in turn, will boost demand for the precious metal. Meanwhile, any significant corrective pullback for XAU/USD appears elusive amid persistent safe-haven demand stemming from political uncertainty in the US ahead of the November 5 presidential election and tensions in the Middle East.
Daily Market Summary: Gold Price Remains Supported by U.S. Political Uncertainty and Geopolitical Risks
- Automatic Data Processing (ADP) reported Wednesday that private sector employers added 233,000 new jobs in October, compared with the previous month’s upwardly revised reading of 159,000 and better than consensus expectations.
- The data points to a resilient labor market, which, together with a series of recently released upbeat US data, suggests the economy remains on solid footing and supports prospects for less aggressive Fed easing. Federal.
- Separately, the US Bureau of Economic Analysis’ initial estimate suggested the world’s largest economy expanded at an annualized pace of 2.8% during the third quarter, slower than the 3% growth recorded during the period. from April to June.
- Markets continue to price in a regular 25 basis point interest rate cut by the Fed in November, which, along with concerns about deficit spending after the US election, continues to push up bond yields. US Treasuries rose on Thursday.
- The 10-year US government bond yield remains just below 4.3%, near its highest level since July, helping to revive demand for the US dollar and acting as a headwind for the price of gold amid slightly overbought conditions.
- The release of the US personal consumption expenditure (PCE) price index on Thursday could influence the Fed’s rate cut path and increase demand for the USD, which, in turn, should provide a significant boost to raw materials.
- Uncertainty ahead of next week’s US presidential election and escalating geopolitical tensions in the Middle East suggest the path of least resistance for the safe-haven precious metal remains to the upside.
Technical Outlook: Gold price bulls could take a pause near ascending channel resistance around $2,800
From a technical perspective, the recent move higher along an ascending channel from the August monthly low points to a well-established short-term uptrend. That being said, the Relative Strength Index (RSI) on the daily chart is already showing overbought conditions. Therefore, any further move higher will likely remain limited near the $2,800 mark. This level represents the upper boundary of the channel, which if broken decisively will be seen as a new trigger for the bulls and will set the stage for an extension of the appreciative move.
On the other hand, any significant corrective decline now seems to find good support near the $2,750-2,748 region or a trading range resistance breakout point. Some follow-through selling could make gold price vulnerable to extending the decline towards the intermediate support at $2,732-2,730 en route towards the $2,715 area. This is followed by the $2,700 mark, which if broken should pave the way for a decline towards the next relevant support near the $2,675 area en route towards the $2,657-2,655 region.
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.
