- The gold price attracted some safe-haven flows on Tuesday amid rising tensions in the Middle East.
- Reduced bets on aggressive Fed rate cuts and a stronger USD capped XAU/USD’s gains.
- Traders now await the US ADP report for fresh impetus ahead of Friday’s US NFP.
The price of gold (XAU/USD) rose more than 1% on Tuesday, reversing its losses recorded in the last two days amid escalating geopolitical tensions in the Middle East. Iran fired ballistic missiles at Israel, raising the risk of all-out war in the region and increasing demand for the traditional safe-haven precious metal. That said, the decreasing odds of more aggressive policy easing by the Federal Reserve (Fed) are holding back bulls from placing aggressive bets on the non-yielding commodity.
Added to this was the buying of US dollars (USD), supported by data showing a resilient US labor market, which further contributed to capping gold price gains. However, XAU/USD remains within reach of the all-time peak touched last week and the fundamental backdrop favors the bulls. Investors now await the release of the US ADP report on private sector employment for fresh impetus, although attention is focused on Friday’s Nonfarm Payrolls report.
Daily Market Drivers Summary: Gold Price Could Attract Safe Haven Flows Amid Lingering Geopolitical Risks
- Iran fired a barrage of ballistic missiles at Israel on Tuesday in retaliation for the latter’s aggression in Lebanon against the Iranian-backed armed movement Hezbollah, and helped revive demand for the safe-haven gold price.
- Israeli Prime Minister Benjamin Netanyahu vowed that Iran would pay for its missile attack, while Iran said any retaliation would be met with vast destruction, raising the risk of a broader conflict in the Middle East.
- The Job Openings and Labor Turnover Survey (JOLTS) released by the US Bureau of Labor Statistics (BLS) showed that the number of job openings unexpectedly increased in August and stood at 8.04 million.
- Separately, the Institute for Supply Management (ISM) reported that its manufacturing PMI was unchanged at 47.2 in September, pointing to a contraction in business activity for the sixth consecutive month.
- Investors are still assessing the likelihood of another 50 basis point interest rate cut by the US central bank in November following relatively hawkish comments from Federal Reserve Chair Jerome Powell on Monday.
- Powell said he sees two more 25 basis point rate cuts this year as a baseline if the economy performs as expected, although the CME Group’s FedWatch tool indicates a more than 35% chance of a large rate cut on next month.
- Atlanta Fed President Raphael Bostic signaled Tuesday that the U.S. central bank should be willing to explore larger rate cuts if the labor market deteriorates and PCE data shows disinflation remains in place. path.
- Market participants now await the US ADP report, which is expected to show that private sector employers added 120,000 jobs in September compared to 99,000 previously, for near-term opportunities.
- However, the focus will be on the official monthly employment details, popularly known as the Non-Farm Payrolls (NFP) report, which should provide fresh directional impetus.
Technical Outlook: Gold price bulls remain in control as long as they stay above resistance-turned-support at $2,625-$2,624
From a technical perspective, the strong overnight move reinforced a short-term ascending channel resistance breakout point, turning into support near the $2,625-$2,624 region. Said area should now act as a key point, which if broken decisively could trigger some technical selling. The subsequent decline could drag the gold price below the $2,600 mark, towards the next relevant support near the $2,560 area en route to the $2,535-$2,530 region.
On the other hand, the $2,672-$2,673 area could continue to offer immediate resistance before the $2,685-$2,686 area, or the all-time peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a new trigger for bullish traders and will set the stage for an extension of a well-established multi-month uptrend.
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.
