- Gold price trades with a mild negative bias for the second successive day on Tuesday.
- Hawkish Fed expectations, elevated US bond yields and some USD buying exert pressure.
- Receding safe-haven demand also undermines the XAU/USD ahead of the FOMC meeting.
Gold price (XAU/USD) remains depressed for the second successive day on Tuesday and trades below the $2,000 psychological mark through the Asian session. Expectations that the Federal Reserve (Fed) will keep the door open for one additional rate hike this year to bring inflation back to its 2% target remain supportive of elevated US Treasury bond yields. This, in turn, helps revive the US Dollar (USD) demand and turns out to be a key factor weighing on the non-yielding yellow metal.
Apart from this, Israel’s more measured approach to its incursion into Gaza has eased fears about a broadening crisis in the Middle East and further undermines the safe-haven Gold price. That said, the risk of a further escalation in the Israel-Hamas conflict remains, which, along with the uncertainty over the economic recovery in China, further lends support to the XAU/USD. Furthermore, the lack of any follow-through selling warrants some caution before placing aggressive bearish bets.
Traders might also opt to remain on the sidelines ahead of a two-day FOMC monetary policy meeting, starting this Tuesday. The Fed is scheduled to announce its decision on Wednesday and is widely anticipated to hold interest rates steady in a range of 5.25%-5.50%, or the highest in 22 years. Investors will look for cues about the future rate-hike path, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the Gold price.
Daily Digest Market Movers: Gold price remains on the defensive below a multi-month high touched last Friday
- Gold price struggles to gain any meaningful traction and remains below a multi-month peak touched last week, though lacks follow-through selling.
- The precious metal remains on track for an 8% rise this month – the most since November 2022 – in the wake of safe-haven demand stemming from the Middle East crisis.
- Investors seem reluctant to place aggressive directional bets and look to the Federal Reserve’s near-term monetary policy outlook for a fresh impetus.
- The Fed is widely expected to keep interest rates steady at a 22-year high at the end of its two-day monetary policy meeting on October 31-November 1.
- The US economy remains resilient and inflation is still above the Fed’s 2% target level, which should allow the US central bank to stick to its hawkish stance.
- Fed Chair Jerome Powell had warned earlier this month that inflation was still too high and more rate increases are possible if the economy stays surprisingly hot.
- The Bank of Japan once again underdelivers and defies market expectations for a change to the 10-year JGB yield ceiling from 1% to perhaps 1.25% or 1.50%.
- Easing geopolitical tension in the Middle East dent demand for traditional safe-haven assets and also contributes to a mildly offered tone around the XAU/USD.
- China’s Manufacturing PMI shrinks and growth in the services sector slowed in October, fuelling concerns about the worsening conditions in the world’s second-largest economy.
Technical Analysis: Gold price could attract some buyers near the $1,985-1,984 strong horizontal resistance breakpoint
From a technical perspective, the Relative Strength Index (RSI) on the daily chart has eased from overbought territory and supports prospects for the emergence of some dip-buying around the Gold price. Hence, any subsequent decline is more likely to find support near the $1,986-1,985 horizontal resistance breakpoint. A convincing break, however, might prompt some technical selling and drag the XAU/USD further towards the $1,964 intermediate support en route to last week’s swing low, around the $1,954-1,953 region.
On the flip side, the $2,000 round figure, followed by the multi-month top, around the $2,005 area touched last Friday, now seems to act as immediate hurdles. A sustained strength beyond should pave the way for an extension of a three-week-old bullish trend and lift the Gold price to the next relevant barrier near the $2,022 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Swiss Franc.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.