Gold remains depressed below multi-week top, Israel-Hamas conflict to limit losses

Gold price kicks off the new week on a weaker note and reverses a part of Friday’s rise to a multi-week high.
Failure to find acceptance above the 200-day SMA prompts some profit-taking amid elevated US bond yields.
Israel-Hamas conflict and dovish Fed expectations should help limit any meaningful downfall for the XAU/USD.

Gold price (XAU/USD) rallied to over a three-week high, around the $1,932-1,933 area on Friday in the wake of the intensifying Israel-Hamas conflict, which forced investors to take refuge in traditional safe-haven assets. Apart from this, expectations that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle provided an additional boost to the non-yielding yellow metal.

Bulls, however, struggled to capitalize on the momentum beyond a technically significant 200-day Simple Moving Average (SMA). This, along with elevated US Treasury bond yields, prompts some profit-taking around the Gold price on the first day of a new week. The XAU/USD extends its steady descent through the European session, albeit manages to hold above the $1,900 mark amid a subdued US Dollar (USD) price action. A softer Greenback tends to benefit US Dollar-denominated commodities, including the XAU/USD.

Traders also seem reluctant and prefer to wait for fresh cues about the Fed's future rate-hike path and important macro releases from China – the world's second-largest economy – before positioning for the next leg of a directional move for the Gold price. In the meantime, Monday's release of the Empire State Manufacturing Index from the United States (US), along with Fedspeaks and the US bond yields, will influence the USD price dynamics. Apart from this, the broader risk sentiment should provide some impetus to the safe-haven metal.

Daily Digest Market Movers: Gold price drifts back closer to the 100-day SMA support

Gold price rallied nearly 3.5% on Friday and recorded strong gains of over 5.2% for the week – the most since March.
An escalation in conflict between Hamas and Israeli troops provided a strong boost to the safe-haven XAU/USD.
The evacuation deadline issued by the Israeli military to the residents of northern Gaza has already been exhausted.
The Israeli military has positioned armoured vehicles and could launch a large-scale ground assault in the Gaza Strip.
The Israel Defence Force (IDF) had announced that they are prepared for a coordinated attack involving air, ground, and naval forces.
Meanwhile, Iran warned of far-reaching consequences if Israel's bombardment was not stopped.
Israel also faces the possibility of a separate conflict on its northern border with Lebanon after artillery exchanges with the Iran-backed Hezbollah group.
The US consumer sentiment deteriorates in October and reaffirms expectations that the Fed will leave rates unchanged for the second consecutive month in November.
Americans’ expectations for overall inflation over the next year jumped from 3.2% in September to 3.8% in the current month – marking its highest level since April.
Expectations for inflation over the next 5 years rose to 3% in October from the 2.8% previous, leaving the door open for one more Fed rate hike move by the end of this year.
The US bond yields remain elevated amid speculations that the Fed might be still far from ending its policy-tightening cycle, which, in turn, acts as a tailwind for the US Dollar.
Failure to find acceptance above the 200-day SMA prompts traders to take some profit-taking around the Gold price, especially after Friday's strong rally.

Technical Analysis: Gold price pauses the intraday decline ahead of the $1,900 mark

From a technical perspective, any subsequent decline is more likely to find decent support near the $1,900 round-figure mark. The said handle coincides with the 100-day SMA and should now act as a key pivotal point. A convincing break below could make the Gold price vulnerable to test the next relevant support near the $1,868 horizontal zone before dropping to the $1,860-1,855 region.

On the flip side, bulls might now wait for some follow-through buying beyond Friday’s swing high, around the $1,932-1,933 zone, before placing fresh bets. The Gold price might then accelerate the momentum towards the $1,945-1,947 heavy supply zone. A sustained strength beyond the latter will be seen as a fresh trigger for bulls and pave the way for a further appreciating move.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Pound Sterling.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.02%	-0.02%	-0.02%	-0.20%	-0.06%	-0.30%	-0.09%
EUR	0.02%		0.00%	0.00%	-0.16%	-0.05%	-0.26%	-0.08%
GBP	0.02%	0.00%		0.00%	-0.16%	-0.05%	-0.27%	-0.06%
CAD	0.02%	-0.01%	0.02%		-0.17%	-0.05%	-0.27%	-0.05%
AUD	0.19%	0.17%	0.16%	0.18%		0.13%	-0.10%	0.09%
JPY	0.07%	0.06%	0.04%	0.03%	-0.12%		-0.23%	-0.02%
NZD	0.28%	0.26%	0.27%	0.27%	0.11%	0.22%		0.17%
CHF	0.08%	0.08%	0.07%	0.06%	-0.07%	0.03%	-0.21%

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).

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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