- Gold prices have regained positive traction following an overnight pullback from all-time highs.
- Political uncertainty in the US and tensions in the Middle East are supporting the safe haven XAU/USD.
- The accommodative monetary policy environment remains supportive, offsetting the rise in US Treasury yields.
Gold prices (XAU/USD) picked up some bullish buying during Asian trading on Tuesday, remaining within range of a new record high near $2,740-$2,741 hit yesterday. Uncertainty surrounding the Nov. 5 US presidential election, the risk of broader Middle East conflict and expectations for interest rate cuts by major central banks continue to provide some support for safe-haven precious metals.
Meanwhile, the U.S. dollar (USD) has firmed near its highest since early August, supported by expectations that the Federal Reserve will reduce interest rate cuts in November and on the back of a recent rise in U.S. Treasury yields. It is progressing. This, combined with a slightly overbought condition on the daily chart, has prevented traders from making new bullish bets around the gold price, allowing it to rally in the absence of any market-moving US economic data. It may be suppressed.
Daily Digest Market Movement: Despite USD Strength, Gold Prices Continue to Be Supported by a Mix of Factors
- A projectile from Lebanon fell on open land in central Israel, and Israel warned of further attacks on Hezbollah targeting the Iranian-backed group's financial activities.
- The European Central Bank last week cut interest rates for the third time this year, the first in 13 years, and is eyeing further rate cuts amid the economic downturn.
- Weaker inflation data from the UK solidified the Bank of England's view of more aggressive interest rate cuts, with the Federal Reserve also expected to further reduce borrowing costs.
- Opinion polls show Vice President Kamala Harris and former President Donald Trump remain in a close race as the November 5 US presidential election approaches.
- Meanwhile, Donald Trump's victory raised concerns that potentially inflationary tariffs could be imposed, causing an overnight drop in U.S. government debt.
- Additionally, the market has fully priced in the possibility of another Fed rate cut in November, with Treasury yields rising to their highest level in nearly three months.
- The US dollar has parlayed its recent strong gains to its highest since early August, although it does little to dampen the strong underlying bullish sentiment surrounding gold prices.
- Traders are now focusing on the release of the Richmond Manufacturing Index, which could provide some stimulus to XAU/USD, along with a speech from Philadelphia Fed President Patrick Harker.
Technical outlook: Gold price may pause near short-term uptrend channel resistance near $2,750
From a technical perspective, the recent rally we've seen over the past couple of weeks is in line with an upward channel. This indicates that a short-term uptrend is established and supports the prospect of a move challenging the trend channel resistance currently anchored around $2,750. Having said that, the Relative Strength Index (RSI) on the daily/4-hour chart shows a slightly overbought situation and warrants some caution. Therefore, it would be prudent for traders to wait for short-term consolidation or a moderate rebound before starting to take positions for the next leg up.
Meanwhile, the correction slide currently appears to be finding some support near $2,720. This is roughly followed by the lower bound of the aforementioned channel, which is currently anchored around $2,710, and a decisive break above this should pave the way for further losses. A subsequent decline could push gold prices below the $2,700 level and towards the support at $2,685. The latter should serve as an important key point, below which XAU/USD could accelerate its decline towards the $2,662-$2,661 resistance breakpoint, which is currently turning into support.
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 could cause the price of gold to rise rapidly 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.
