- XAU/USD fell to $2,646 after September inflation data suggested progress towards the Fed's 2% target.
- The US 10-year Treasury yield fell 5 basis points, and the US dollar index fell 0.16% to 100.41.
- Israel's attack on Lebanon raises geopolitical risks, but gold fails to gain momentum as traders cash in their profits.
Gold falls to a three-day low below $2,650 after the U.S. Bureau of Economic Analysis (BEA) said September inflation remained on track for the Federal Reserve's (Fed) target. It fell to Even though this justified further Fed easing, the metal failed to gain momentum as analysts speculated that traders were locking in profits. XAU/USD is trading at $2,646, down almost 1%.
Earlier, BEA said August data showed the Federal Reserve's preferred inflation measure, the Personal Consumption Expenditure Price Index (PCE), was slightly closer to the central bank's 2% target. Meanwhile, core PCE increased by one-tenth of a point compared to July data.
Following this data, the yield on the 10-year U.S. Treasury bond fell by 5 basis points to 3.749%. As a result, the US dollar index (DXY) fell by 0.16% to 100.41, and the US dollar also weakened.
According to the CME FedWatch tool, this data increases the probability of a 50 basis point (bp) easing at the November meeting.
Given the market reaction, it was expected that gold prices could reach further record highs. Nevertheless, XAU/USD fell below its September 26 daily low of $2,654, opening the door to further decline.
Other data showed the University of Michigan consumer sentiment final reading improved in September.
Separately, an escalation of the Middle East conflict between Israel and Hezbollah looms. Israel claimed Friday that it attacked Hezbollah's headquarters in southern Beirut. Israeli officials said the government preferred not to proceed with a ground invasion of Lebanon, but would not rule out the possibility.
Reuters revealed that net inflows into gold ETFs were modest last week and have not yet contributed significantly to gold's rally, but analysts expect further activity in ETFs in the coming months. are.
A daily digest that moves the markets: Gold prices fall as US inflation approaches 2% target
- U.S. PCE rose 2.2% year over year in August, down from 2.5% the previous month and slightly below consensus expectations.
- Core PCE increased slightly, as expected, from 2.6% to 2.7% year over year for the same period.
- University of Michigan (UoM) consumer sentiment improved from 69.0 to 70.1 in September. One-year inflation expectations fell to 2.7% from 2.8%, while five-year inflation expectations rose to 3.1% from 3%.
- Market participants are fully pricing in at least a 25 bps rate cut by the Fed. However, the probability of a 50 basis point rate cut fell to 54.7% from 60% two days ago, according to the CME FedWatch tool.
XAU/USD Technical Analysis: Gold Price Falls, Stays Around $2,650
Gold prices hit an all-time high of $2,685 and remain on an upward bias. However, buyers failed to push the stock to new record highs, opening the door for a pullback. The Relative Strength Index (RSI) has moved out of overbought territory and towards the 60 mark, with short-term momentum favoring sellers.
If XAU/USD falls below $2,650, it will test the September 18 daily high of $2,600. The key support levels tested below are the September 18 low of $2,546 and the 50-day simple moving average (SMA) of $2,488.
Conversely, if XAU/USD extends its rally above the current year-to-date (YTD) peak of $2,685, the next resistance level would be at the $2,700 mark. Next is the $2,750 level and then $2,800.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify their foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs typically put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
