- Gold price attracts some dip-buying on Tuesday amid a combination of supporting factors.
- The US political uncertainty and Middle East tensions underpin the safe-haven XAU/USD.
- The easing monetary policy environment offsets rising US bond yields and remains supportive.
Gold price (XAU/USD) regains positive traction on Tuesday and steadily climbs back closer to the all-time peak heading into the European session. The uncertainty surrounding the US Presidential election on November 5, along with the risk of a broader Middle East conflict and the expected interest rate cuts by major central banks, continue to offer some support to the safe-haven precious metal.
Furthermore, a modest US Dollar (USD) downtick turns out to be another factor underpinning demand for the Gold price. That said, expectations that the Federal Reserve (Fed) will proceed with modest interest rate cuts remain supportive of elevated US Treasury bond yields and should limit the USD slide. This, in turn, might act as a headwind for the XAU/USD amid slightly overbought conditions.
Daily Digest Market Movers: Gold price attracts haven flows amid a modest USD downtick
- A projectile crossing from Lebanon fell in an open area in central Israel, while the latter warned of more attacks on Hezbollah after targeting the Iran-backed group’s financial operations.
- The European Central Bank last week lowered interest rates for the third time this year – marking the first back-to-back rate cut in 13 years – and eyes more cuts amid an economic downturn.
- Weak inflation data from the UK solidified bets for more aggressive rate cuts by the Bank of England and the Federal Reserve is also anticipated to lower borrowing costs further.
- Opinion polls indicate that Vice President Kamala Harris and former President Donald Trump remain locked in a close contest as the November 5 US Presidential election approaches.
- Meanwhile, increasing concerns that Donald Trump’s win could see the launch of further potentially inflation-generating tariffs triggered the overnight selloff in US government debt.
- Moreover, the markets have fully priced out the possibility of another jumbo interest rate cut by the Fed in November, lifting the US Treasury bond yields to nearly three-month highs.
- The US Dollar preserves its recent strong gains to the highest level since early August, albeit does little to dent the underlying strong bullish sentiment surrounding the Gold price.
- Traders now look to the release of the Richmond Manufacturing Index, which, along with Philadelphia Fed President Patrick Harker’s speech, might provide some impetus to the XAU/USD.
Technical Outlook: Gold price overbought RSI warrants some caution before placing fresh bullish bets
From a technical perspective, the recent move-up witnessed over the past two weeks or so has been along an ascending channel. This points to a well-established short-term uptrend and supports prospects for a move towards challenging the trend-channel resistance, currently pegged near the $2,750 region. That said, the Relative Strength Index (RSI) on daily/4-hour charts is flashing slightly overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for the next leg up.
Meanwhile, any corrective slide now seems to find some support near the $2,720 region. This is closely followed by the lower end of the aforementioned channel, currently pegged near the $2,710 area, which if broken decisively should pave the way for deeper losses. The subsequent fall could drag the Gold price below the $2,700 mark, towards the $2,685 support. The latter should act as a key pivotal point, below which the XAU/USD could accelerate the decline towards the $2,662-2,661 resistance breakpoint, now turned support.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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