- Gold price challenges all-time high and gains support from a combination of factors.
- Expected rate cuts by major central banks and geopolitical risks boost XAU/USD.
- The bulls seem unaffected by the USD’s recent rally to its highest level since August.
The price of gold (XAU/USD) continued its bullish trend seen over the past week and retested the all-time high on Wednesday amid expected interest rate cuts by major central banks. Traders have fully priced in a 25 basis point (bp) interest rate cut by the US Federal Reserve (Fed) in November. Furthermore, weak inflation data from Europe and the United Kingdom have solidified bets on more aggressive policy easing by the European Central Bank (ECB) and the Bank of England (BoE). This led to generally lower yields, which, in turn, continued to offer support to the non-yielding yellow metal.
Apart from this, the persistent geopolitical risks arising from the ongoing conflicts in the Middle East turn out to be another factor underpinning the demand for safe haven gold price. Meanwhile, growing acceptance that the Fed will proceed with modest interest rate cuts over the next year lifted the US Dollar (USD) to its highest level since early August and beyond the US Simple Moving Average (SMA). 100 days for the first time since July. This, in turn, could deter traders from placing new bullish bets on XAU/USD and limit rallies ahead of US macroeconomic data due this Thursday.
Daily Market Drivers Summary: Gold Price Continues to Receive Support from Rate Cut Bets and Middle East Concerns
- The recent drop in crude oil prices is expected to ease inflationary pressures and allow major central banks to cut interest rates further, continuing to drive flows into the non-yielding gold price.
- The European Central Bank is on track to make its third rate cut of the year this Thursday, while a sharp drop in UK inflation reaffirmed bets on a rate cut by the Bank of England in November.
- Additionally, the CME Group’s FedWatch tool indicates a more than 90% chance that the Federal Reserve will reduce borrowing costs by 25 basis points next month, dragging US bond yields to a low of more than a week.
- Meanwhile, the US Dollar extended its well-established uptrend seen since earlier this month and rose to its highest level since early August, although it did little to discourage XAU/USD bulls.
- Recent comments from officials at the London Bullion Market Association’s annual conference suggest that central banks remain interested buyers of bullion to diversify their reserves for financial or strategic reasons.
- The United Nations (UN) said Israeli forces have fired on its peacekeeping position, forced entry into a base, halted a critical logistics movement and wounded more than a dozen of its troops in the southern Lebanon.
- According to a source familiar with the matter, Israel’s plan to respond to Iran’s Oct. 1 attack is ready, raising the risk of further escalation of geopolitical tensions and all-out war in the Middle East.
- China’s housing minister, during a press conference on Thursday, said the government will add 1 million village development projects and adopt monetization measures for such development projects.
- Later in the early North American session, traders will take cues from the US economic agenda, which includes the release of Retail Sales, weekly Initial Jobless Claims and the Fed Manufacturing Index. from Philadelphia.
- Furthermore, the ECB’s monetary policy decision could infuse volatility into the markets and provide some significant boost to the safe-haven precious metal, allowing traders to take advantage of short-term opportunities.
Technical Outlook: Gold price looks set to conquer $2,700 and extend its well-established uptrend
From a technical perspective, the ongoing positive move could lift the price of gold to the $2,700 mark. Some follow-on buying will be seen as a new trigger for bullish traders and pave the way for an extension of a multi-month uptrend. The constructive outlook is reinforced by the fact that the oscillators on the daily chart remain in positive territory and are still far from being in the overbought zone.
On the other hand, the 2,662-2,660 horizontal zone now appears to act as immediate support ahead of the 2,647-2,646 area. A convincing break below the latter could trigger some technical selling and drag gold price to intermediate support at $2,630 en route towards the $2,600 neighborhood.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
