Created
: 2024.10.09
2024.10.09 13:03
Gold price (XAU/USD) fell nearly 1.5% intraday and touched a three-week low on Tuesday, albeit found some support ahead of the $2,600 round-figure mark. The US Dollar (USD) hovered near a seven-week high amid reduced bets for another oversized interest rate cut by the Federal Reserve (Fed), which turned out to be a key factor that undermined demand for the non-yielding bullion. Apart from this, news of a possible ceasefire between Lebanon's Hezbollah and Israel weighed heavily on the safe-haven precious metal and dragged it below a short-term trading range support near the $2,630 area.
The downfall, however, stalled ahead of the $2,600 mark as traders opt to wait for the release of the minutes of the September FOMC policy meeting, due later this Wednesday. Apart from this, the US Consumer Price Index (CPI) and the US Producer Price Index (PPI) on Thursday and Friday, respectively, will be looked upon for fresh cues on the interest rate outlook. This, in turn, will play a key role in determining the next leg of a directional move for the Gold price. In the meantime, subdued US Dollar (USD) price action might hold back bears from placing fresh bets and limit losses for the XAU/USD.
From a technical perspective, the overnight breakdown through the $2,630 support, or the lower boundary of a short-term trading range, could be seen as a fresh trigger for bearish traders. That said, oscillators on the daily chart - though have been losing traction - are yet to confirm a negative bias. Hence, it will be prudent to wait for some follow-through selling and acceptance below the $2,600 mark before positioning for further losses. The Gold price might then extend the corrective slide towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region and the $2,500 psychological mark.
On the flip side, the trading range support breakpoint, around the $2,630-2,635 region, now seems to act as an immediate hurdle. Any subsequent move up could be seen as a selling opportunity and remain capped near the $2,657-2,658 horizontal barrier. A sustained strength beyond has the potential to lift the Gold price to the $2,670-$2,672 supply zone, above which bulls might aim to challenge the all-time high, around the $2,685-2,686 zone touched in September. This is closely followed by the $2,700 mark, which if cleared will set the stage for an extension of a well-established 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
: 2024.10.09
Last updated
: 2024.10.09
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