- Gold price remains on the defensive amid reduced bets for a 50 bps Fed rate cut in November.
- The USD consolidates last week’s strong gains and also contributes to capping the XAU/USD.
- Geopolitical risks might continue to act as a tailwind and limit losses for the precious metal.
Gold price (XAU/USD) extends its sideways consolidative price move on Monday and remains confined in a familiar range held over the past week or so amid mixed fundamental cues. The upbeat US monthly employment details released on Friday forced investors to price out the possibility of another oversized interest rate cut by the Federal Reserve (Fed) in November. This, in turn, keeps the US Dollar (USD) supported near a seven-week top, which, along with a generally positive risk tone, acts as a headwind for the non-yielding yellow metal.
That said, the risk of a further escalation of geopolitical tensions in the Middle East might continue to offer some support to the safe-haven Gold price and help limit deeper losses. Moreover, the recent range-bound price action points to indecision among traders over the next leg of a directional move. This further makes it prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out and positioning for any meaningful corrective decline in the absence of any relevant market-moving US macro data.
Daily Digest Market Movers: Gold price is undermined by expectations of a less dovish Fed, bullish USD
- Friday’s blowout US employment details temper market expectations for a more aggressive policy easing by the Federal Reserve and continue to undermine demand for the non-yielding Gold price.
- The US Labor Department reported that the economy added 254K jobs in September, beating estimates by a big margin, and the Unemployment Rate unexpectedly dipped to 4.1% from 4.2%.
- Additional details showed that there were 72K more jobs added in July and August than previously reported, pointing to a still resilient labor market and that the economy is in a much better shape.
- According to the CME Group’s FedWatch Tool, traders now see a nearly 95% chance that the Fed will lower borrowing costs by 25 basis points at the end of the November policy meeting.
- The yield on the benchmark 10-year US government bond remains close to the 4.0% threshold, while the US Dollar stands tall near a seven-week high and keeps the XAU/USD bulls on the defensive.
- The upbeat US NFP report eased concerns about an economic slowdown, which, along with the optimism over China’s stimulus, remains supportive of the upbeat mood around the equity markets.
- Israel carried out intense bombardment in Gaza’s Jabalia refugee camp and launched a new round of airstrikes in Lebanon. In retaliation, Hezbollah attacked Israel’s Haifa on Monday morning.
- The developments raise the risk of a full-blown war in the Middle East and might continue to benefit the commodity’s safe-haven status, warranting some caution for bearish traders.
- Official data published earlier this Monday showed that China’s Gold reserves remained unchanged for the fifth straight month and sat at 72.8 million fine troy ounces at the end of September.
Technical Outlook: Gold price remains confined in a one-week-old range; limited downside potential
From a technical perspective, the range-bound price action might still be categorized as a bullish consolidation phase against the backdrop of the recent strong runup to the record peak. Moreover, oscillators on the daily chart are holding comfortably in positive territory and have also eased from the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price remains to the upside and supports prospects for an eventual break to the upside. That said, it will still be prudent to wait for some follow-through buying above the $2,670-$2,672 hurdle before placing fresh bullish bets. This is followed by the $2,685-2,686 zone, or the all-time high, and the $2,700 mark, which if cleared will set the stage for an extension of a well-established multi-month-old uptrend.
On the flip side, the lower end of the aforementioned trading range, around the $2,630 area, might continue to offer immediate support to the Gold price and act as a key pivotal point for short-term traders. A convincing break below might prompt some technical selling and drag the XAU/USD below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the next relevant support near the $2,535-2,530 region en route to the $2,500 psychological mark.
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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