- Gold price prolongs its upward trajectory and touches a fresh record high on Monday.
- Major central banks remain in rate-cut mode and continue to benefit the XAU/USD.
- Middle East tensions and US political uncertainty further underpin the precious metal.
Gold price (XAU/USD) builds on Friday’s breakout momentum above the $2,700 mark and gains some follow-through traction for the fifth successive day at the start of a new week. This also marks the seventh day of a positive move in the previous eight and lifts the commodity to a fresh record high, beyond the $2,730 region during the Asian session. Persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, along with the US political uncertainty ahead of the Presidential election on November 5, continue to underpin the safe-haven precious metal.
Apart from this, the easing monetary policy environment and the expected interest rate cuts by major central banks contribute to driving flows towards the non-yielding Gold price. The supporting factors, to a large extent, overshadow the prevalent risk-on environment and the recent US Dollar (USD) upswing to its highest level since early August, which tends to dent demand for the XAU/USD. That said, slightly overbought conditions on the daily chart might cap any further appreciating move for the yellow metal amid bets for less aggressive easing by the Federal Reserve (Fed).
Daily Digest Market Movers: Gold price benefits from geopolitical risks, rate cut expectations and the US political uncertainty
- A combination of supporting factors assists the Gold price to prolong its recent well-established uptrend and touch a fresh all-time peak during the Asian session on Monday.
- Tensions and conflicts in the Middle East show no signs of abating despite the killing of Hamas leader Yahya Sinwar as Israel prepares to respond to Iran’s early-October strike.
- Israel’s Prime Minister Benjamin Netanyahu said that the attack on his private residence by Iran’s Lebanese proxy Hezbollah would not deter him from continuing the war.
- The Israeli army launched a series of air strikes across Lebanon and also intensified attacks across Gaza, raising the risk of a full-blown regional war in the Middle East.
- Recent polls indicate a close contest between Donald Trump and Vice President Kamala Harris, adding a layer of uncertainty and benefiting the safe-haven XAU/USD.
- The European Central Bank last week decided to lower interest rates for the third time this year – marking the first back-to-back rate cut in 13 years – and eyes more cuts.
- The Federal Reserve is also anticipated to lower borrowing costs further, while weak inflation data from the UK solidified bets for a more aggressive easing by the Bank of England.
- Investors have fully priced out the possibility of another jumbo interest rate cut by the Fed in November as the incoming macro data continue to point to a resilient US economy.
- Atlanta Fed President Raphael Bostic said that he is not in a rush to cut rates and see the case for a reduction in the policy rate to somewhere between 3% and 3.5% by the end of next year.
- The yield on the benchmark 10-year US government bond holds above 4% and acts as a tailwind for the USD, albeit does little to hinder the commodity’s positive move.
- Investors continue to cheer the launch of two funding schemes on Friday by the People’s Bank of China aimed at supporting the development of capital markets.
Technical Outlook: Gold price needs to consolidate amid slightly overbought RSI on the daily chart, bullish bias remains
From a technical perspective, last week’s sustained strength and close above the $2,700 mark could be seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart has moved beyond the 70 mark, flashing slightly overbought conditions. This, in turn, makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the recent well-established uptrend.
Meanwhile, the $2,700 round figure now seems to protect the immediate downside, below which the Gold price could accelerate the corrective decline towards the $2,662-2,660 zone. The next relevant support is pegged near the $2,647-2,646 area. A convincing break below the latter might prompt some technical selling and expose the $2,600 mark with some intermediate support near the $2,630 region.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Source: https://www.fxstreet.com/news/gold-price-uptrend-remains-uninterrupted-fresh-all-time-peak-and-counting-202410210411