- Gold hits a new record high, driven by expectations of a Fed rate cut in November and falling US Treasury yields.
- Mixed US economic data reveals manufacturing weakness but services sector resilience, according to S&P Global Flash PMIs.
- Fed officials express caution about aggressive rate cuts, maintaining flexibility in policy while noting growing labor market risks.
- Rising tensions between Israel and Hezbollah heighten safe-haven appeal, potentially driving further demand for Gold.
Gold's price rose marginally on Monday, hitting an all-time high above $2,630, fueled by increasing bets that the US Federal Reserve (Fed) will lower interest rates in November. The XAU/USD trades at $2,627, registering more than 0.20% gains.
US equities showed an improvement in risk appetite on Monday. Bullion traders reached record peaks during the last two trading days, irrespective of a firm US Dollar. The main driver seems to be the drop in US Treasury yields, with the 10-year T-note yielding 3.741%, failing to edge higher amid the Fed speaker's pullback against aggressively lowering rates.
Data from the United States (US) was mixed. S&P Global revealed its Flash PMIs, painting a gloomy outlook for manufacturers, while the services sector remained resilient despite decelerating modestly compared to August’s data.
In the meantime, the Atlanta Fed GDP Now model projects the economy to grow 2.9% in Q3 2024, even though the labor market has softened.
On Monday, Fed regional presidents acknowledged that the risks of a weakening labor market have increased. Nonetheless, they pushed back against lowering interest rates at a 50 bps pace, keeping their options open for future meetings and signaling a gradual approach.
This capped the XAU/USD rally, though heightened tensions in the Middle East conflict between Israel and Hezbollah could dampen the risk appetite and increase Gold prices. According to the Associated Press, the US is sending more troops to the Middle East as violence has risen, the Pentagon said Monday.
Daily digest market movers: Gold price holds gains despite Fed commentary
- US S&P Global Manufacturing PMI in September deteriorated further from 47.9 in August to 47.0, below forecasts of 48.5.
- The S&P Global Services PMI expanded by 55.4, above estimates of 55.3 but beneath the previous month's 55.7, hinting that the US economy is decelerating.
- According to the World Gold Council, global physically-backed Gold ETFs saw modest net inflows of 3 metric tons last week.
- Minneapolis Fed President Neel Kashkari stated that the Fed remains data-dependent, affirming that the 50 bps rate cut was "the right decision" and projected the fed funds rate to end at 4.4% in 2024.
- Atlanta Fed President Raphael Bostic remarked that the half-point cut "does not lock in a cadence for future rate cuts" while acknowledging that labor market risks have increased.
- Chicago Fed President Austan Goolsbee added that more rate cuts will be needed next year.
XAU/USD technical outlook: Gold poised for retracement before extending gains
The XAU/USD is upwardly biased, though the rally seems overextended. Gold’s price action remains subdued within an anemic $20 range.
The Relative Strength Index (RSI) has turned overbought, hinting that buyers are in charge but that a pullback might be on the cards.
Expect a leg-down if XAU/USD drops below the September 18 daily high at $2,600. The following key support levels to test will be the September 18 low of $2,546, followed by the 50-day Simple Moving Average (SMA) at $2,481.
Conversely, if XAU/USD clears the all-time high (ATH) of $2,634, traders could eye the $2,650 area, followed by the $2,700 mark.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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