- Gold price attracts dip-buyers and draws support from a combination of supporting factors.
- The US political uncertainty and Middle East tensions underpin the safe-haven XAU/USD.
- The easing monetary policy environment offsets rising US bond yields and also offers support.
Gold price (XAU/USD) maintains its bid tone through the first half of the European session and currently trades around the $2,735 region, just below the all-time peak touched the previous day. The uncertainty surrounding the US Presidential election on November 5, along with the risk of a broader Middle East conflict and the expected interest rate cuts by major central banks, continue to offer some support to the safe-haven precious metal.
Apart from this, a modest US Dollar (USD) downtick is seen as another factor underpinning demand for the Gold price. That said, bets for a smaller interest rate cut by the Federal Reserve (Fed) in November and the recent upswing in the US Treasury bond yields should limit the USD corrective slide. Moreover, slightly overbought conditions on the daily chart might contribute to keeping a lid on any further appreciating move for the XAU/USD.
Daily Digest Market Movers: Gold price stands firm near record high, despite elevated US bond yields
- A projectile crossing from Lebanon fell in an open area in central Israel, while the latter warned of more attacks on Hezbollah after targeting the Iran-backed group's financial operations.
- The European Central Bank last week lowered interest rates for the third time this year – marking the first back-to-back rate cut in 13 years – and eyes more cuts amid an economic downturn.
- Weak inflation data from the UK solidified bets for more aggressive rate cuts by the Bank of England and the Federal Reserve is also anticipated to lower borrowing costs further.
- Opinion polls indicate that Vice President Kamala Harris and former President Donald Trump remain locked in a close contest as the November 5 US Presidential election approaches.
- Meanwhile, increasing concerns that Donald Trump's win could see the launch of further potentially inflation-generating tariffs triggered the overnight selloff in US government debt.
- Moreover, the markets have fully priced out the possibility of another jumbo interest rate cut by the Fed in November, lifting the US Treasury bond yields to nearly three-month highs.
- The US Dollar preserves its recent strong gains to the highest level since early August, albeit does little to dent the underlying strong bullish sentiment surrounding the Gold price.
- Traders now look to the release of the Richmond Manufacturing Index, which, along with Philadelphia Fed President Patrick Harker's speech, might provide some impetus to the XAU/USD.
Technical Outlook: Gold price could face stiff resistance near the top end of an ascending channel, near $2,750
From a technical perspective, the recent move-up witnessed over the past two weeks or so has been along an ascending channel. This points to a well-established short-term uptrend and supports prospects for a move towards challenging the trend-channel resistance, currently pegged near the $2,750 region. That said, the Relative Strength Index (RSI) on daily/4-hour charts is flashing slightly overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for the next leg up.
Meanwhile, any corrective slide now seems to find some support near the $2,720 region. This is closely followed by the lower end of the aforementioned channel, currently pegged near the $2,710 area, which if broken decisively should pave the way for deeper losses. The subsequent fall could drag the Gold price below the $2,700 mark, towards the $2,685 support. The latter should act as a key pivotal point, below which the XAU/USD could accelerate the decline towards the $2,662-2,661 resistance breakpoint, now turned support.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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