- Gold corrects after reaching a new all-time high of $2,790 on Thursday.
- The yellow metal sees downward pressure from rising US Treasury yields following strong US jobs data.
- Hopes for a ceasefire in the Middle East and the likelihood of a Trump victory are also weighing on Gold.
Gold (XAU/USD) recovers and reverses from its new all-time high of $2,790 on Thursday. The precious metal is trading almost a percentage point lower partly due to rising US Treasury yields, which reflect elevated interest rate expectations. These, in turn, have reduced the attractiveness of non-interest-paying assets like Gold.
Strong US ADP employment data on Wednesday helped offset weak US JOLTS job openings data released earlier in the week as it suggested the US labor market was not in such bad shape. as feared. This is reducing bets that the Federal Reserve (Fed) will need to cut interest rates to boost employment. Market-based probabilities, using the price of interest rate swaps as a guide, forecast a nearly 100% chance of a 25 basis point (bp) or 0.25% cut by the Fed in November, but a 70% chance in December.
Bond yields could be rising further due to the increasing odds that Republican candidate Donald Trump will win the race for the White House. Trump’s preference for lower taxes, higher government borrowing and tariffs on foreign imports would likely be inflationary for the economy and lead the Fed to keep interest rates higher for longer.
This, and the appearance of a ray of hope on the horizon for a ceasefire in the Middle East – thus reducing safe haven demand for the yellow metal – is creating a headwind for the price of gold in its upward march.
Gold falls as bearish factors accumulate
The price of gold is retreating from the all-time highs it hit on Wednesday as the chances of a Trump presidency increase.
Polling website FiveThirtyEight’s prediction model gives Trump a 52% chance of winning to Vice President Kamala Harris’ 48%. Betting website OddsChecker offers fractional odds of 11/18 (or 62.1%) for a Trump victory versus 28/17 (or 37.8%) for a Kamala Harris victory. However, the latest opinion polls still put Harris slightly in the lead with 48.1% to Trump’s 46.7%.
Additionally, gold may be falling due to reduced safe haven flows amid hopes of a ceasefire in the Middle East. The United States has sent a new envoy to negotiate a peace agreement between Israel, Hamas and Hezbollah. Early indications suggest that Israel is open to negotiation after successfully repelling Hezbollah from southern Lebanon, decapitating its hierarchy and severely reducing Hamas’ capabilities in Gaza, according to Bloomberg News. However, the threat of Iran opening a direct front against Israel remains a potential obstacle.
That said, the war in Ukraine continues to fuel geopolitical risks following the escalation of North Korean troops entering the war on Russia’s side.
Gold could also continue to see gains as the US Dollar weakens, despite rising bond yields (normally bullish for the Dollar) because gold is primarily priced and traded in USD. The US Dollar Index (DXY) has fallen more than a tenth of a percent on Thursday – almost a third of a percent in total this week so far – trading just below 104.00.
Technical Analysis: Gold retreats after reaching new highs
Gold has broken out of the mini-range it was stuck in between $2,708 and $2,758 and has risen to a new all-time high of $2,790 on Wednesday.
Overall, the yellow metal is in a consistent uptrend on all time frames (short, medium and long), which, given the technical principle that “the trend is your friend”, tilts the odds in favor of further upside. .
XAU/USD Daily Chart
The break above the top of the range helps confirm a continuation to the next target level, probably at the $3,000 level (round number and psychological level).
A deeper pullback would initially find support at the top of the old range at $2,758, then at $2,750. However, the overall uptrend would likely resume afterwards.
A break above $3,000 would trigger the next upside target at $3,050.
Interest rates FAQs
Financial institutions charge interest rates on loans from borrowers and pay them as interest to savers and depositors. They are influenced by basic interest rates, which are set by central banks based on the evolution of the economy. Typically, central banks are mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below the target, the central bank can cut base interest rates, in order to stimulate credit and boost the economy. If inflation rises substantially above 2%, the central bank typically raises core lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and, since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations about the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
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.