Gold struggles to lure buyers amid fading hopes for larger Fed rate cut

Gold price lacks any firm near-term direction amid a mixed fundamental backdrop.
Diminishing odds for an aggressive Fed easing cap the upside for the XAU/USD.
Geopolitical risks and a modest USD downtick to limit losses for the commodity.

Gold price (XAU/USD) continues with its struggle to gain any meaningful traction and remains confined in a familiar trading range held over the past week or so. Friday's upbeat US jobs report provided further evidence of a still resilient labor market and forced investors to further scale back bets for an oversized interest rate cut by the Federal Reserve (Fed) in November. This keeps the US Dollar (USD) steady near a seven-week top and acts as a headwind for the non-yielding yellow metal.

That said, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East help limit the downside for the safe-haven Gold price. Furthermore, traders might prefer to wait on the sidelines ahead of the release of the September FOMC meeting minutes on Wednesday. Apart from this, the US Consumer Price Index (CPI) and the US Producer Price Index (PPI) on Thursday and Friday, respectively, will influence the USD and provide some meaningful impetus to the XAU/USD.

Daily Digest Market Movers: Gold price bulls remain on the sidelines amid smaller Fed rate cut bets

The upbeat US jobs report for September released on Friday prompts traders to pare bets for a more aggressive policy easing by the Federal Reserve and undermines the Gold price.
According to CME's FedWatch tool, market participants are currently pricing in an 85% chance of a 25 basis points rate cut at the next FOMC monetary policy meeting in November.
The yield on the benchmark 10-year US government bond moved past the 4% threshold for the first time in two months, while the US Dollar moved away from a seven-week high.
Minneapolis Fed President Neel Kashkari noted on Monday that the overall balance of risks has now shifted away from higher inflation, towards maybe higher unemployment.
Separately, St. Louis Fed President Alberto Musalem said that he supports additional interest rate cuts and that the economic performance will determine the path of monetary policy.
Hezbollah fired rockets at Israel's port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a couple of buildings in the southern suburbs of Beirut.
Investors remain concerned that Middle East tensions could turn into a wider conflict, which might act as a tailwind for the safe-haven XAU/USD and help limit deeper losses.
China’s state planner – the National Development and Reform Commission (NDRC) – said this Tuesday that the downward pressure on China's economy is increasing.
Traders now look to the release of the FOMC meeting minutes on Wednesday, which will be followed by the latest US inflation figures on Thursday and Friday, respectively.

Technical Outlook: Gold price traders away break through short-term range before placing directional bets

From a technical perspective, the $2,632-2,630 area, or the lower boundary of a short-term trading range, might continue to protect the immediate downside. 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.

Meanwhile, oscillators on the daily chart are holding in positive territory and favor bullish traders. That said, the $2,670-$2,672 area might continue to act as an immediate barrier. This is followed by the $2,685-2,686 zone or the all-time high touched in September, and the $2,700 mark, which if cleared will be seen as a fresh trigger for bulls and set the stage for an extension of a well-established multi-month-old uptrend.

Interest rates FAQs

What are interest rates?

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.

How do interest rates impact currencies?

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.

How do interest rates influence the price of Gold?

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.

What is the Fed Funds rate?

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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