Gold stands firm near record high, above $2,700 amid global monetary easing cycle

Gold price gains positive traction for the fourth successive day and jumps to a fresh all-time peak.
Major central banks remain in rate-cut mode and continue to benefit the non-yielding XAU/USD.
Middle East tensions and the US political uncertainty provide an additional boost to the commodity.

Gold price (XAU/USD) builds on its uptrend witnessed over the past week or so and climbs beyond the $2,700 mark, hitting a fresh record high during the Asian session on Friday. Major central banks have been cutting interest rates and are expected to ease monetary policy further. This, along with persistent geopolitical risks stemming from the ongoing conflicts in the Middle East and the uncertainty surrounding the US Presidential election, turn out to be key factors driving flows towards the precious metal.

Apart from this, a modest US Dollar (USD) pullback from its highest level since early August touched on Thursday further lends support to the Gold price. Meanwhile, traders no longer expect another outsized interest rate cut by the Federal Reserve (Fed) in November, which had been a key factor behind the recent upswing in the US Treasury bond yields. This, in turn, should help limit any meaningful USD corrective decline and hold back traders from placing fresh bullish bets around the non-yielding yellow metal.

Daily Digest Market Movers: Gold price continues to attract buyers amid rate cuts by major central banks

On Thursday, the European Central Bank decided to lower interest rates for the third time this year – marking the first back-to-back rate cut in 13 years – and eyes more cuts in the wake of the worsening economic outlook.
The Federal Reserve is also anticipated to lower borrowing costs further after a jumbo rate reduction in September, while weak inflation data from the UK solidified bets for a more aggressive easing by the Bank of England.
Meanwhile, the tight race between Donald Trump and Kamala Harris adds a layer of uncertainty, which, along with the risk of a further escalation of conflicts in the Middle East, lift the Gold price to a fresh all-time high.
The Israeli military confirmed that Hamas leader Yahya Sinwar had been killed on Wednesday after a “year-long pursuit”, while the Iran-backed Hezbollah announced a new and escalating phase in its war with Israel.
Data published by the US Census Bureau on Thursday showed that Retail Sales increased by 0.4% in September, surpassing market expectations for a 0.3% monthly gain and a 0.1% rise recorded in the previous month.
Separately, the US Labor Department reported that Initial Jobless Claims, after hitting the highest level in more than a year, fell to 241K in the week that ended October 12 against the anticipated reading of 260 K.
Furthermore, the Philadelphia Federal Reserve's manufacturing sector survey revealed that the business conditions index rose from 1.7 to 10.3 in October, beating consensus estimates by a wide margin.
The data suggested that the economy remains on solid footing and reaffirmed bets for a less aggressive Fed policy easing, lifting the US bond yields and the US Dollar, albeit doing little to dent demand for the XAU/USD.
Meanwhile, the markets react little to the latest Chinese macro data, which showed that the world's second-largest economy expanded by 0.9% in the third quarter of 2024, while the annual growth rate stood at 4.6%.
Traders now look to the US housing market data – Building Permits and Housing Starts – and Fed Governor Christopher Waller's scheduled speech to grab short-term opportunities on the last day of the week.

Technical Outlook: Gold price could pause before the next leg up, $2,672-70 area holds the key for bulls

From a technical perspective, a sustained move beyond the $2,700 mark comes on the back of this week's breakout above the $2,670-2,672 supply zone and could be seen as a fresh trigger for bullish traders. This, along with the fact that oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, suggests that the path of least resistance for the Gold price is to the upside.

On the flip side, any meaningful corrective slide now seems to find decent support near the $2,662-2,660 horizontal zone 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. The latter should now act as a strong base for the XAU/USD and a key pivotal point for short-term traders.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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