Gold price stays strong amid US election drama, Fed rate cut insight

Gold prices stabilize, with year-to-date gains exceeding 30% amid market turbulence.
US Treasury yields dip; USD weakens as investors await Fed's 25 bps rate cut.
Analysts suggest a Trump victory could boost gold further due to inflation concerns.

Gold prices remained choppy during Monday’s session as the US presidential election continued amid uncertainty about who would win the White House. Additionally, this week, the US Federal Reserve (Fed) is expected to lower rates at the November 6-7 meeting.

The XAU/USD trades at $2,736, virtually unchanged. Yields in the US 10-year benchmark note have fallen eight basis points, after hitting 4.388% last week, sitting at 4.30% at the time of writing. In the meantime, the Greenback, as measured by the US Dollar Index (DXY) performance, tumbled over 0.40%, down to 103.90.

Wall Street is focused on the outcome of the US presidential election. Opinion polls show Democratic candidate Kamala Harris and Republican Donald Trump in a technical tie. A Reuters poll showed concerns that the US could face a similar election crisis post-Trump’s 2020 election defeat.

By Thursday, the Federal Reserve is expected to lower borrowing costs by 25 basis points to the 4.50%-4.75% range. October’s US economic data revealed that the US jobs market remains solid, lowering the odds of the US hitting a recession.

Analysts at TD Securities said “If Trump wins, I think, Gold does well here. We're probably worried a little bit more about inflation with all the tariffs that he's talking about.” Bullion is a hedge in tough and uncertain economic and political times.

The golden metal has enjoyed a rally of over 30% in 2024, and has recorded all-time highs, which sits at $2,790 at the time of writing.

Daily Digest Market Movers: Gold price consolidates amid US Presidential election

The US Census Bureau reported that US factory orders in September contracted by -0.5%, slightly more than the expected -0.4%, but there was an improvement over August's -0.8% decline.
Last week’s rising US inflation and dismal jobs report raised the chances of the Federal Reserve reducing rates in 0.25% chunk sizes.
The Federal Open Market Committee (FOMC) is anticipated to cut rates by 25 bps at its November 7 meeting.
Data from the Chicago Board of Trade, based on the December fed funds rate futures contract, indicates that investors are pricing in 50 basis points (bps) of Fed easing by the end of the year.

XAU/USD Technical Outlook: Gold price retreats below $2,750 as bulls take a breather

Gold prices remain consolidated. The XAU/USD fluctuated between $2,730 and $2,748 during the trading day, with no catalyst for moving it outside of those boundaries.

Momentum remains bullish, as depicted by the Relative Strength Index (RSI), though buyers seem to have lost a step as the RSI edges lower in bullish territory.

Gold buyers need to reclaim the psychological $2,750 figure for a bullish continuation. Once cleared, the next stop would be the record high at $2,790. Conversely, if XAU/USD registers a daily close below $2,750, further weakness lies ahead.

The first support would be the October 23 low at $2,708. Once surpassed, the next stop would be $2,700, followed by the September 26 swing high, which turned support at $2,685, and by the 50-day Simple Moving Average (SMA) at $2,628.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

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.

What are the key assets to track to understand risk sentiment dynamics?

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.

Which currencies strengthen when sentiment is "risk-on"?

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.

Which currencies strengthen when sentiment is "risk-off"?

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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