- Gold price pauses after the recent strong move up to a fresh all-time peak touched on Monday.
- The fundamental backdrop favors bullish trades and supports prospects for additional gains.
- Traders now look forward to the US PCE Price Index on Friday before placing directional bets.
Gold price (XAU/USD) extends its consolidative price move for the second straight day on Tuesday as bulls turn cautious after the recent rise to a fresh all-time peak touched the previous day amid slightly overbought conditions on the daily chart. The downside remains cushioned in the wake of bets for more aggressive easing by the US Federal Reserve (Fed), which caps the US Dollar (USD) recovery from the YTD peak touched in reaction to a jumbo rate cut last week.
Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, along with the US political uncertainty ahead of the November election and worries about an economic slowdown, should underpin the safe-haven Gold price. That said, the underlying bullish tone across the global equity markets keeps a lid on the safe-haven XAU/USD, ahead of this week’s release of the US Personal Consumption Expenditures (PCE) Price Index on Friday.
Daily Digest Market Movers: Gold price remains supported by further Fed rate cut bets, geopolitical risks
- Bets that the Federal Reserve will further lower borrowing costs by 125 basis points in 2024 after last week’s jumbo 50 bps rate cut pushed the non-yielding Gold price to a fresh record high on Monday.
- According to the CME Group’s FedWatch Tool, investors are now pricing in another oversized rate cut at the November policy meeting, which caps a modest US Dollar recovery from the YTD low.
- Minneapolis Fed President Neel Kashkari noted on Monday that the balance of risks had shifted away from high inflation to a further weakening of the labor market, warranting a lower interest rate.
- Adding to this, Atlanta Fed President Raphael Bostic said that the recent data show convincingly that the US is on a sustainable path to price stability and that risks to the labour market have increased.
- Chicago Fed President Austan Goolsbee said that the labor market deterioration typically happens quickly and that keeping rates high does not make sense when you want things to stay where they are.
- On the data front, a survey compiled by S&P Global showed that business activity in the Eurozone unexpectedly contracted sharply, while business activity in the US was steady in September.
- Additional details of the flash US PMI showed that average prices charged for goods and services rose at the fastest pace in six months, pointing to an acceleration in inflation in the coming months.
- This comes on top of the hypothesis that rate cuts implemented to stimulate the economy occasionally lead to rising prices and could benefit the commodity’s status as a hedge against inflation.
- Israeli airstrikes on Monday against what it said are Hezbollah weapons sites in southern and eastern Lebanon killed nearly 500 people, raising the risk of a wider conflict in the Middle East.
- This, along with the US political uncertainty and a bleak global economic outlook, suggests that the path of least resistance for the safe-haven precious metal remains to the upside.
- That said, a surprise rate cut by the People’s Bank of China (PBOC) on Monday, along with a stopgap spending bill to fund the US government through December 20, cap gains for the XAU/USD.
- Traders might also opt to move to the sidelines ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday amid overbought conditions on the daily chart.
Technical Outlook: Gold price needs to consolidate before advancing the recent upward trend
From a technical perspective, the recent breakout and acceptance above the $2,600 mark could be seen as a fresh trigger for bullish traders. That said, the Relatively Strength Index (RSI) on the daily chart is holding above the 70 mark and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg of a move-up.
Meanwhile, any corrective slide is likely to attract fresh buyers near the $2,600 mark, below which the Gold price could drop to the $2,560 horizontal zone. The next relevant support is pegged near the $2,535-2,530 resistance breakpoint ahead of the $2,500 psychological mark. A convincing break below the latter might shift the near-term bias in favor of bearish trades and pave the way for some meaningful downside.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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