- 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 exerts some pressure on the XAU/USD.
- Geopolitical risks might continue to act as a tailwind and limit losses for the precious metal.
Gold price (XAU/USD) trades with a negative bias for the fourth straight day on Monday, albeit it lacks follow-through selling and remains confined in a familiar range held over the past week or so amid mixed fundamental cues. Friday's upbeat US jobs report smashed market expectations for a more aggressive policy easing by the Federal Reserve (Fed), which keeps the US Dollar (USD) elevated near a seven-week high and exerts some pressure on the non-yielding yellow metal.
Apart from this, the underlying bullish tone across the global equity markets further undermine the safe-haven Gold price. That said, any meaningful corrective decline still seems elusive in the wake of persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, which tends to benefit the precious metal. Traders might also prefer to wait for this week's release of FOMC meeting minutes on Wednesday and the US consumer inflation figures on Thursday.
Daily Digest Market Movers: Gold price remains depressed amid bets for less aggressive Fed rate cuts
- 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 needs to break below $2,635-2,630 support for bears to seize control
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.
Risk sentiment FAQs
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.
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.
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.
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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