- XAU/USD is rising as lower US Treasury yields increase demand for non-yielding assets.
- Traders expect the ECB to act on October 17th, expecting major central banks to cut interest rates as inflation cools.
- Geopolitical uncertainty and the upcoming US election are driving demand for gold as a safe-haven asset amid fears of an economic slowdown.
Gold prices rose in mid-North American trading on Wednesday after falling in US Treasury yields and ignoring the recent strength of the dollar. Expectations that major central banks will cut interest rates amid subdued inflation weighed on bond yields and pushed non-yielding metals higher. At the time of writing, XAU/USD is trading at $2,674, up 0.46%.
Market sentiment has improved recently, as evidenced by three out of four US stock indexes trading in the green. U.S. Treasury yields widened their decline, providing a tailwind for bullion prices to a year-to-date high of $2,685, but lacked the power to push prices toward $2,700.
During the European meeting, UK inflation remained below the Bank of England's 2% target. Therefore, the BOE is expected to restart the easing cycle in line with the Federal Reserve and the European Central Bank. Traders expect the ECB to cut interest rates on October 17, citing concerns that inflation is on track for the central bank's target and that the region's economies are at risk of slipping into recession.
Gold rallied as traders looking for safety bought the edge amid concerns that the global economy may be heading for a slowdown and uncertainty surrounding the upcoming U.S. presidential election.
“We expect uncertainty and volatility to rise until the next U.S. administration is elected,” UBS analysts said, suggesting that gold and oil could be “effective portfolio hedges.” did.
Meanwhile, traders see a 96% chance that the U.S. will cut interest rates by 25 basis points in November, according to the CME FedWatch tool.
A lack of economic data has kept traders focused on developments in the Middle East and China's stimulus plans.
Market participants are focused on upcoming U.S. retail sales and industrial production data, as well as the number of new jobless claims to be released later this week.
A daily digest that moves the markets: Gold prices rise as investors focus on key US data
- Gold prices continued to be supported by lower US 10-year Treasury yields.
- The benchmark 10-year bond rate fell 2 basis points to 4.014%.
- Nevertheless, overall strength in the US dollar has limited bullion gains to $2,700.
- The US dollar index against a basket of six currencies rose 0.34% to 103.57.
- Investors are pricing in 50 basis points (bp) of Fed easing in the final two months of 2024, according to data from the Chicago Commodity Exchange Commission based on December federal funds rate futures contracts.
XAU/USD technical outlook: Gold prices soar above $2,670, looking towards year-to-date peak
Gold’s uptrend remains intact, with buyers launching an initial attack towards the year-to-date high of $2,685, but failing to break out of the latter. As shown by the Relative Strength Index (RSI), momentum remains bullish and the door is open for price increases.
Therefore, the first resistance level for gold is at the year-to-date high of $2,685. Once cleared, you can consider moving to $2,700, followed by $2,750, $2,800, and so on.
Conversely, if XAU/USD falls below the October 4 high of $2,670, a retracement towards $2,650 is possible. In case of further decline, the next support is at $2,600, followed by the 50-day simple moving average (SMA) of $2,561.
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 stymied 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.
