- Gold price falls to a one-week low amid some repositioning trades ahead of the US elections.
- Fed rate cut bets, falling US bond yields and weak USD demand could offer some support.
- Tensions in the Middle East could further help limit losses for the safe-haven XAU/USD.
The price of gold (XAU/USD) attracts new sellers during the Asian session on Tuesday and falls to a more than one-week low, around the $2,725-2,724 region, although the decline appears to be cushioned. Uncertainty surrounding the disputed US presidential election, along with the risk of further escalation of geopolitical tensions in the Middle East, could continue to offer support to the safe-haven precious metal.
Meanwhile, the dismantling of the “Trump trade” and bets that the Federal Reserve (Fed) will cut interest rates further amid signs of a cooling US labor market lead to a further decline in bond yields This fails to help the US Dollar (USD) take advantage of the overnight rebound from a two-week low and should further help limit any significant depreciation move for the non-yielding gold price.
Daily Market Drivers Summary: Gold Price Could Continue to Find Support on US Political Uncertainties and Middle East Troubles
- Recent opinion polls indicated that Democratic candidate Kamala Harris and Republican Donald Trump are in a tight race for the White House, fueling political uncertainty.
- Former President Donald Trump’s chances of victory have fallen significantly, leading to a dismantling of the “Trump Trade” and dragging down US Treasury yields.
- The yield on the 10-year U.S. government bond and the two-year Treasury note posted their biggest daily declines in two months and nearly three weeks, respectively.
- Part of the decline in US bond yields could be attributed to growing bets on further interest rate cuts by the Federal Reserve, reinforced by signs of a weakening US labor market.
- Iran signaled it would respond harshly to Israel’s late October attacks on its territory, while the US directly warned Iran against launching another attack on its ally Israel.
- Tuesday’s US economic agenda includes the release of the ISM Manufacturing PMI later in the US session, although it could do little to provide any boost ahead of the US presidential election.
Technical Outlook: Gold price could find support near the $2,750-$2,715 area before the lower end of an ascending channel
From a technical perspective, last week’s failure near the upper boundary of an ascending channel extending since late July and subsequent pullback from the all-time peak could be seen as a sign of bullish exhaustion. However, the mixed oscillators on the daily chart warrant some caution before positioning for further losses. Therefore, any further decline will likely find support near the $2,720-$2,715 horizontal zone, below which gold price could attempt to challenge the support of the trend channel, currently located near the $2,690 region. Some continued selling would mark a bearish breakout and pave the way for a significant corrective decline in the near term.
On the other hand, the $2,748-2,750 area now appears to act as an immediate hurdle ahead of the $2,790 region, or the all-time high reached last Thursday. This is followed by the round figure at $2,800 and the ascending channel resistance, around the $2,820 area. Sustained strength beyond the latter will be seen as a new trigger for the bulls and will allow the gold price to extend its recent well-established 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.
