Created
: 2024.10.29
2024.10.29 11:22
Gold price (XAU/USD) ticks higher during the Asian session on Tuesday and moves closer to the top end of a short-term trading range held over the past week or so. Against the backdrop of safe-haven demand stemming from Middle East tensions and US election jitters, subdued US Dollar (USD) price action is seen as a key factor offering support to the commodity. However, bets for a less aggressive policy easing by the Federal Reserve (Fed) continue to act as a tailwind for the buck and hold back bullish traders from placing fresh bets around the non-yielding yellow metal.
Apart from this, the underlying bullish tone across the global equity markets contributes to capping the upside for the Gold price. Investors also seem reluctant and prefer to move to the sidelines ahead of this week's important macro releases from the US - the Advance Q3 GDP print, the Personal Consumption Expenditures (PCE) Price Index and the Nonfarm Payrolls (NFP) report. The crucial data will play a key role in influencing market expectations about the Fed's rate-cut path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the XAU/USD.
From a technical perspective, acceptance above the $2,750 supply zone could be seen as a fresh trigger for bullish traders. The subsequent move up could lift the Gold price beyond the all-time peak, around the $2,759 region, towards testing a nearly four-month-old ascending trend-line resistance near the $2,770-2,775 region. The momentum could extend further towards the $2,800 round-figure mark.
That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought territory and warrants some caution for bulls. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further near-term appreciating move.
Meanwhile, any corrective pullback now seems to find some support near the overnight swing low, around the $2,725 region, ahead of the $2,715 zone. The latter marks the lower boundary of the one-week-old range, which if broken decisively might prompt some technical selling. The Gold price might then weaken further below the $2,700 mark, towards the $2,675 area en route to the $2,657-2,655 horizontal support.
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
: 2024.10.29
Last updated
: 2024.10.29
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