- 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) attracts fresh sellers on Monday and drops to a fresh daily low, around the $2,640 region heading into the European session. The US Dollar (USD) stands tall near a seven-week top as traders continue to price out the possibility of an oversized interest rate cut by the Federal Reserve (Fed) in November following the release of the upbeat US monthly jobs report on Friday. This, along with a generally positive risk tone, turns out to be a key factor undermining demand for the yellow metal.
The global risk sentiment remains well supported by easing worries about an economic downturn in the US and the optimism led by a slew of stimulus measures from China. That said, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East and fears of a full-blown war in the region might continue to act as a tailwind for the safe-haven Gold price. This makes it prudent to wait for a break below the $2,635-$2,630 support before positioning for deeper losses for the XAU/USD.
Daily Digest Market Movers: Gold price drifts lower amid bullish USD, bets for smaller Fed rate cut
- 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 could accelerate the fall once the $2,635-2,630 pivotal support is broken
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.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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