Gold (XAU/USD) eases from the vicinity of the record high during the Asian session on Tuesday, though any meaningful slide still seems elusive amid a supportive fundamental backdrop. The US Dollar (USD) is looking to build on its gains registered over the past three days and turning out to be a key factor acting as a headwind for the commodity. Moreover, a generally positive tone around the equity markets contributes to capping the upside for the safe-haven precious metal.
The USD upside, however, seems limited in the wake of concerns that a prolonged US government shutdown would affect the economic performance and dovish Federal Reserve (Fed) expectations. In fact, traders have now fully priced that the US central bank will lower borrowing costs two more times this year, which might keep a lid on the USD. Apart from this, persistent trade-related uncertainties and geopolitical tensions might continue to lend support the non-yielding Gold.
Daily Digest Market Movers: Gold bulls turn cautious as modest USD uptick offsets a combination of supporting factors
- The US Dollar attracts some buyers for the third consecutive day and exerts some downward pressure on the Gold price during the Asian session on Tuesday. Moreover, the global risk sentiment remains well supported by signs of easing US-China trade tensions and turns out to be another factor undermining the safe-haven precious metal.
- US President Donald Trump said on Friday that a full-scale tariff on China would be unsustainable. Trump added on Sunday that said that both countries would strike a fantastic deal, though he warned that failure to reach an agreement could see China face potential tariffs of 155%. This keeps focus squarely on US-China trade talks next week.
- According to the CME Group’s FedWatch Tool, traders have nearly fully priced in a 25-basis-points rate cut at each of the US Federal Reserve’s policy meetings in October and in December. This might keep a lid on any meaningful USD appreciating move and continue to act as a tailwind for the non-yielding yellow metal amid economic risks.
- Investors seem worried that a prolonged US government closure would affect the economic performance. The Senate voted against reopening the US government for the 11th time on Monday, extending the shutdown to a third week as both sides remain deadlocked. Trump accused the opposition of blocking efforts to curb illegal immigration.
- Russian President Vladimir Putin reportedly reiterated his demand that Ukraine give up all of Donetsk Oblast as a condition for ending the war, and suggested that Russia would be willing to surrender parts of occupied southern Ukraine. Adding to this, Trump said on Sunday that the battle lines should be frozen where they currently stand.
- Ukrainian President Volodymyr Zelenskyy, however, has repeatedly rejected the idea of forfeiting the Donbas, or any other occupied ground, to Russia. This keeps geopolitical risks in play, which should further extend some support to the safe-haven precious metal and contribute to limiting any meaningful corrective pullback.
- Traders might also opt to wait for the release of the latest US consumer inflation figures on Friday, which might provide some cues about the Fed’s rate-cut path. This, in turn, will play a key role in influencing the USD price dynamics and driving the XAU/USD pair ahead of the crucial two-day FOMC policy meeting starting next Tuesday.
Gold could accelerate the corrective slide below the $4,330 immediate support
The precious metal has been facing difficulty in building on its recent well-established uptrend beyond the $4,375-4,380 zone. Given that the daily Relative Strength Index (RSI) is still flashing extremely overbought conditions, the repeated failures near the said region could be seen as the first sign of a bullish exhaustion. Any subsequent fall below the $4,330 area, however, is likely to attract some buyers and remain cushioned near the $4,300 mark. A convincing break below the latter might prompt some technical selling and make the Gold price vulnerable to accelerate the corrective fall towards the $4,240 intermediate support en route to the $4,210-4,200 region.
On the flip side, bulls might wait for a sustained move beyond the $4,375-4,380 region before placing fresh bets. A subsequent strength beyond the $4,400 round figure will mark a fresh breakout for the Gold price and pave the way for an extension of a well-established uptrend witnessed over the past two months or so.
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.