- Gold price trades in positive territory in Monday’s Asian session.
- The US Fed rate cut and Middle East geopolitical risks continue to underpin the precious metal.
- The renewed US Dollar demand might cap the upside of the XAU/USD.
The Gold price (XAU/USD) reaches a record high on Monday, supported by a softer Greenback. The start of a monetary easing cycle of the Federal Reserve’s (Fed) and the expectation of deeper rate cuts this year might underpin the non-interest-bearing Gold price. Furthermore, the rising geopolitical tensions in the Middle East might lead to fresh allocation towards safe-haven assets like gold.
Looking ahead, traders will keep an eye on the flash reading of the US Purchasing Managers Index (PMI) data, which is due later on Monday. However, the stronger-than-expected outcome could lift the USD and weigh on the USD-denominated Gold price.
Daily Digest Market Movers: Gold price remains stronger amid global factors
- “The forced liquidation of short positions may push the gold price higher into historical highs, as the US dollar generally holds its ground against a basket of major currencies, and rising bond yields create an unfavorable environment for gold,” said FxPro analysts.
- Hezbollah and Israel exchanged heavy fire on Sunday, as the Lebanese militant group launched missiles deep into northern Israeli territory after facing some of the most intense bombardment in almost a year of conflict, per CNN.
- Fed Philadelphia President Patrick Harker said on Friday that the US central bank has effectively navigated a challenging economy over the last few years. Harker further stated that “hard” and “soft” data are both important in decision-making.
- Fed Governor Michelle Bowman noted on Friday that it was appropriate to recalibrate the Fed funds rate level, but she preferred a smaller first move as they have not yet achieved the inflation target.
- Fed Governor Christopher Waller noted on Friday that the decision to cut interest rates by an accelerated 50 bps was the right call, but the US central bank could even pause, depending on further data.
Technical Analysis: Gold price holds above $2,600 amid an overbought RSI
The Gold price edges higher on the day. The precious metal keeps a strong bullish trend on the daily timeframe as the price is well-supported above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) stands above the midline near 70.50, indicating the overbought RSI condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term Gold price rise.
The yellow metal approaches a major resistance area near the all-time high at $2,625. A decisive break above this level could pave the way to the $2,700 psychological level.
On the flip side, the first downside target emerges at the $2,600 round figure. A breach of this level could see a downward move back towards the resistance-turned-support level at $2,560. The next contention level is located at $2,485, the low of September 6.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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