- Gold fell 0.09%, just below its all-time high, as U.S. Treasury yields rose more than 10 basis points to 4.192%.
- Money continues to flow into safe havens amid hostilities in the Middle East and uncertainty in the U.S. election, where polls show a close race between Harris and Trump.
- Fed officials have signaled a gradual rate cut, but a 25bps rate cut at the November meeting is still heavily priced in.
Gold prices hit another record high during North American trading on Monday, but the rally was halted by rising U.S. Treasury yields and a stronger dollar. Tensions in the Middle East and uncertainty surrounding the US presidential election have increased flows into safe-haven assets over the past five trading days. At the time of writing, XAU/USD was down slightly by 0.09% at $2,718.
In the midst of a close US election, market sentiment turned negative. Vice President Kamala Harris leads former President Donald Trump in the popular vote, 45% to 42%, Reuters reported. However, the winner will be determined by state-by-state Electoral College results.
“Polls show Harris and Trump tied in these battleground states, with many results within the margin of error,” according to Reuters.
During this time, U.S. Treasury yields rose more than 10 basis points, with the 10-year T-note yielding 4.192%. As a result, the US Dollar Index (DXY), which tracks the value of the US dollar against a basket of six currencies, rose 0.50% to a two-month high of 104.01.
Fighting in the Middle East continued as Israel revealed that a projectile from Lebanon had hit an open field in central Israel. Meanwhile, Iran's UN special envoy called Biden's comments in Berlin about Israel's plans to attack the country “inflammatory.”
Federal Reserve officials have crossed the wire. Dallas Fed President Laurie Logan added to calls for gradual reductions in borrowing costs, saying monetary policy needs to be nimble.
Minneapolis Fed President Neel Kashkari echoed Logan's comments, saying he expects modest rate cuts in the coming quarters, but that evidence of labor market weakness could prompt an earlier rate cut. He added that there is. He added that the Fed “definitely” wants to avoid a recession.
Nevertheless, there is a strong expectation that the Fed will cut interest rates by 25 basis points at its November meeting. The odds remained at 87%, according to CME FedWatch Tool data.
A daily digest that moves the markets: Gold prices rise in defiance of positive US statistics
- The number of new U.S. unemployment claims for the week ending October 19 is expected to rise from 241,000 to 247,000.
- U.S. business activity is expected to improve in the manufacturing sector in October, while the services PMI is expected to decline slightly from 55.2 to 55, according to S&P Global.
- Investors expect 46 basis points (bps) of Fed easing through the end of the year, up from a week ago, according to data released by the Chicago Commodity Exchange Commission based on December federal funds rate futures contracts. It is slightly lower than that.
XAU/USD Technical Outlook: Gold Price Returns Below $2,720
The price of gold is expected to increase further, but the formation of a “gravestone doji” could open the door to a decline.
Momentum is showing signs of losing some momentum, as shown by the Relative Strength Index (RSI), although buyers continue to be in the lead. Despite the bullishness, the RSI remains flat.
If XAU/USD clears the October 21 high of $2,740, the next stop would be $2,750 and then $2,800.
Conversely, if XAU/USD pulls back from its all-time high below $2,700, it could pave the way for a pullback. The first support will be found at the October 17th high of $2,696, followed by the October 4th high of $2,670.
Fed Frequently Asked Questions
Monetary policy in the United States is shaped by the Federal Reserve Board (Fed). The Fed has two responsibilities: achieving price stability and promoting full employment. The main tool to achieve these goals is to adjust interest rates. If prices rise too fast and inflation exceeds the Fed's 2% target, interest rates will be raised, increasing borrowing costs for the entire economy. This makes the US a more attractive place for international investors to put their money, and the US dollar (USD) appreciates. If inflation falls below 2% or unemployment is too high, the Fed could lower interest rates to encourage borrowing, which would weigh on the dollar.
The Federal Reserve (Fed) holds eight annual policy meetings where the Federal Open Market Committee (FOMC) assesses economic conditions and decides on monetary policy. Twelve Fed officials will attend the FOMC meeting. Seven board members, the president of the New York Fed, and four of the remaining 11 regional reserve bank presidents will serve rotating one-year terms. .
In extreme circumstances, the Federal Reserve may resort to a policy called quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit in a stalled financial system. This is a non-standard policy tool used in times of crisis or when inflation is extremely low. This was the Fed's weapon of choice during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, in which the Federal Reserve stops buying bonds from financial institutions and reinvests the principal of maturing bonds to buy new bonds. Never. It is usually positive for the value of the US dollar.
