- Gold price trades with a negative bias for the second straight day amid a stronger USD.
- Reduced bets for a 50 bps Fed rate cut in November lifted the USD to a multi-week high.
- Geopolitical risks continue to act as a tailwind for the XAU/USD ahead of the US data.
Gold price (XAU/USD) attracts fresh sellers following the overnight bounce from the $2,641 area and remains on the defensive heading into the European session on Thursday. The US Dollar (USD) prolongs its goodish recovery move from the lowest level since July 2023 and advances to a three-week high amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, is seen as a key factor undermining demand for the non-yielding yellow metal, though a further escalation of tensions in the Middle East helps limit the downside.
Iran launched over 200 ballistic missiles at Israel on Tuesday, while the latter conducted a precise air strike and bombed central Beirut in Lebanon during the early hours of Thursday. This raises the risk of a full-blown war in the region and tempers investors' appetite for riskier assets, which is evident from a generally weaker tone around the equity markets and acts as a tailwind for the safe-haven Gold price. Thursday's US economic docket could provide some impetus to the XAU/USD, though the focus will remain on the US Nonfarm Payrolls (NFP) report on Friday.
Daily Digest Market Movers: Gold price bulls remain on the defensive amid broad based USD strength
- The incoming stronger US labor market reports and the Federal Reserve Chair Jerome Powell's relatively hawkish remarks on Monday assist the US Dollar in prolonging its recovery move from the lowest level since July 2023.
- The US JOLTS Job Openings survey published on Tuesday showed that the number of available jobs unexpectedly jumped by 329K from an upwardly revised 7.711 million in the previous month to 8.040 million in August.
- Furthermore, Automatic Data Processing (ADP) reported on Wednesday that private-sector employers added 143K jobs in September against expectations for a rise of 120K and August's upwardly revised reading of 103K.
- This provided evidence of a still resilient US labor market and forced investors to reassess the likelihood of another 50-basis points interest rate cut by the US central bank at its next monetary policy meeting in November.
- Adding to this hopes that China's massive stimulus measures will ignite a lasting recovery in the world's second-largest economy and further act as a headwind for the safe-haven Gold price on Thursday.
- On the geopolitical front, an Israeli strike on central Beirut, Lebanon, early this Thursday comes after Iran fired more than 180 ballistic missiles at Israel on Tuesday, raising the risk of a full-out war in the Middle East.
- The mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the XAU/USD ahead of important US macro data, including the closely-watched Nonfarm Payrolls report on Friday.
- In the meantime, Thursday's US economic docket – featuring Initial Jobless Claims and ISM Services PMI – and speeches by influential FOMC members might produce short-term opportunities around the precious metal.
Technical Outlook: Gold price setup supports prospects for emergence of dip-buying near $2,625-2,624 support
From a technical perspective, the range-bound price action since the beginning of this week comes on the back of the recent strong rally to a record high and might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding comfortably in positive territory and have also eased from the overbought zone. This, in turn, favors bullish traders and suggests that the path of least resistance for the Gold price remains to the upside. Meanwhile, the $2,672-$2,673 area might continue to offer immediate resistance ahead of the $2,685-2,686 zone, or the all-time peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a fresh trigger for bulls and set the stage for an extension of a well-established multi-month-old uptrend.
On the flip side, the weekly low, around the $2,625-2,624 area, which coincides with a short-term ascending channel resistance breakpoint, might continue to offer support and act as a key pivotal point. A convincing break below might prompt aggressive technical selling and drag the Gold price below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the $2,535-2,530 support before the XAU/USD eventually drops 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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