Created
: 2024.09.30
2024.09.30 11:53
Gold price (XAU/USD) kicks off the new week on a softer note, albeit it remains confined in a multi-day-old range and within striking distance of the all-time peak touched last Thursday. Israel intensified the war at its border with Lebanon, raising the risk of a further escalation of geopolitical tensions in the Middle East. Apart from this, news that Japan's new Prime Minister Shigeru Ishiba is planning a general election for October 27, along with the US political uncertainty, should lend support to the safe-haven precious metal.
Furthermore, dovish Federal Reserve (Fed) expectations keep the US Dollar (USD) bulls on the defensive, near the lowest level since July 2023 touched on Friday, and might turn out to be another factor acting as a tailwind for the non-yielding Gold price. That said, the risk-on environment, bolstered by additional stimulus announced by China over the weekend, is seen exerting some pressure on the XAU/USD for the second straight day. Nevertheless, the fundamental backdrop supports prospects for the emergence of some dip-buying.
From a technical perspective, any subsequent fall is likely to find decent support near a short-term ascending trend-channel resistance breakpoint, around the $2,625 region. This is followed by the $2,600 mark, which if broken decisively could pave the way for some meaningful downside in the near term. Given that the Relative Strength Index (RSI) on the daily chart is still hovering near the overbought zone, the Gold price might then accelerate the slide towards the $2,560 intermediate support en route to the $2,535-2,530 region.
On the flip side, the $2,670-2,671 area now seems to act as an immediate hurdle ahead of the $2,685-2,686 zone, or the record high touched last Thursday. This is closely followed by the $2,700 round figure, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a multi-month-old uptrend.
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.
Created
: 2024.09.30
Last updated
: 2024.09.30
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