- Gold price challenges all-time peak and draws support from a combination of factors.
- Expected rate cuts by major central banks and geopolitical risks boost the XAU/USD.
- Bulls seem rather unaffected by the recent USD rally, to its highest level since August.
Gold price (XAU/USD) attracts some follow-through buying for the third successive day on Thursday and retests the all-time peak, around the $2,685 region during the Asian session. The expected interest rate cuts by major central banks, along with geopolitical risks stemming from the ongoing conflicts in the Middle East, turn out to be key factors driving flows towards the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) stands firm near its highest level since early August amid growing acceptance that the Fed will proceed with modest interest rate cuts over the next year. This, along with a positive risk tone, holds back traders from placing fresh bullish bets around the safe-haven Gold price and keeps a lid on any further gains. Traders now look to the US macro data for short-term opportunities.
Daily Digest Market Movers: Gold price continues to be undermined by rate-cut bets and geopolitical risks
- The recent decline in Crude Oil prices is expected to ease inflationary pressures and allow major central banks to cut interest rates further, which continues to drive flows towards the non-yielding Gold price.
- The European Central Bank is on course to deliver its third interest rate cut of the year this Thursday, while a sharp drop in the UK inflation reaffirmed bets for a rate cut by the Bank of England in November.
- Moreover, the CME Group's FedWatch Tool indicates over a 90% chance that the Federal Reserve will lower borrowing costs by 25 basis points next month, dragging the US bond yields to over a one-week low.
- Meanwhile, the US Dollar prolonged its well-established uptrend witnessed since the beginning of this month and climbed to its highest level since early August, though it did little to discourage the XAU/USD bulls.
- The recent comments from officials at the London Bullion Market Association's annual conference suggest that central banks remain keen buyers of bullion to diversify their reserves for financial or strategic reasons.
- The United Nations (UN) said that Israeli forces have fired at its peacekeeping position, forcibly entered a base, stopped a critical logistical movement, and injured more than a dozen of its troops in southern Lebanon.
- According to a source familiar with the matter, Israel’s plan to respond to Iran’s October 1 attack is ready, raising the risk of a further escalation of geopolitical tensions and a full-blown war in the Middle East.
- China's housing minister, during a press briefing this Thursday, said that the government will add 1 million village urbanization projects and will adopt monetisation measures for the said urbanisation projects.
- Later during the early North American session, traders will take cues from the US economic docket – featuring the release of Retail Sales, Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index.
- Furthermore, the ECB monetary policy decision might infuse volatility in the markets and provide some meaningful impetus to the safe-haven precious metal, allowing traders to grab short-term opportunities.
Technical Outlook: Gold price bulls might now wait for a move beyond $2,700 mark before placing fresh bets
From a technical perspective, the ongoing positive move could lift the Gold price to the $2,700 mark. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for an extension of a multi-month-old uptrend. The constructive outlook is reinforced by the fact that oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone.
On the flip side, the $2,662-2,660 horizontal zone now seems to act as an immediate support ahead of the $2,647-2,646 area. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $2,630 intermediate support en route to the $2,600 neighborhood.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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