Gold price rises to record highs as US election concerns mount

Gold surges to $2,691, boosted by uncertainty surrounding US elections, despite robust Retail Sales and job data.
US 10-year Treasury yield rebounds to 4.096%, capping Gold’s advance as the US Dollar Index reaches a two-month high.
Traders trim bets on a Fed rate cut, with odds for a November 25 bps reduction dropping to 88.2%.

Gold price hit a record high during the North American session on Thursday, yet it failed to hit $2,700 amid uncertainty around US elections. Data-wise, the US economy remains resilient following Retail Sales and jobs data, though it didn’t weigh on the precious metal. At the time of writing, the XAU/USD trades at $2,691, up by over 0.66%.

The US Department of Commerce revealed that Retail Sales rose slightly above estimates. At the same time, the US Labor Department revealed data on fewer Initial Jobless Claims, which weighed on Bullion prices.

After the data, the US 10-year Treasury yield rebounded off its lows, rising eight basis points to 4.096%. The Gold price dipped to $2,672 but has recovered some ground, shrugging off broad US Dollar strength.

The US Dollar Index (DXY), which tracks the Greenback’s currency against a basket of six peers, rose over 0.26% to 103.79, a nearly two-month peak.

Following the data, the Atlanta Fed GDP Now estimates the US Gross Domestic Product (GDP) to grow 3.4% from 3.2% on October 9.

Given the backdrop, traders trimmed their bets on the Federal Reserve’s (Fed) easing in the final two Fed meetings of the year. For the upcoming November meeting, the odds for a 25 bps rate cut decreased from 94% to 88.2%; while the chances of the Fed standing pat are at 11.8%.

"On top of the concerns in the Middle East, you are also nearing the US election, which is looking like a very closely contested election. And that generates a whole host of uncertainty, and Gold often is the place to go in times of uncertainty,” said Niteh Shah, a strategist at WisdomTree.

Daily digest market movers: Gold price climbs as investors eye key US data

US Retail Sales for September rose by 0.4% (MoM), exceeding estimates of 0.3% and higher than August's 0.1% increase.
Initial Jobless Claims for the week ending October 12 came in at 241K, below estimates and down from last week's 258K.
US Industrial Production contracted by -0.3% MoM in September, reversing from 0.3% growth, impacted by external factors.
Data from the Chicago Board of Trade, based on the December fed funds rate futures contract, indicates that investors estimate 48 basis points of Fed easing by the end of the year.

XAU/USD technical outlook: Gold price surges above $2,690, eyes on $2,700

Gold’s upward bias is intact. Bulls could push the XAU/USD spot price toward the psychological $2,700 figure in the short term as the Relative Strength Index (RSI) suggests buyers are gathering steam.

Gold’s first resistance is the YTD high at $2,696. Once cleared, a move to $2,700 is on the cards, followed by $2,750 and $2,800.

Conversely, if XAU/USD falls below the October 4 high at $2,670, a retracement toward $2,650 is on the cards. On further weakness, the next support would be $2,600, followed by the 50-day Simple Moving Average (SMA) at $2,561.

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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