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Gold price flirts with record peak, seems poised to appreciate further

  • Gold price challenges all-time peak and draws support from a combination of factors.
  • Expected rate cuts by major central banks and geopolitical risks boost the XAU/USD.
  • Bulls seem rather unaffected by the recent USD rally, to its highest level since August. 

Gold price (XAU/USD) built on its uptrend witnessed over the past week or so and retested the all-time high on Wednesday amid the expected interest rate cuts by major central banks. Traders have fully priced in a 25 basis points (bps) interest rate cut by the US Federal Reserve (Fed) in November. Furthermore, weak inflation data from Europe and the UK have solidified bets for a more aggressive policy easing by the European Central Bank (ECB) and the Bank of England (BoE). This led to generally lower yields, which, in turn, continued to offer support to the non-yielding yellow metal. 

Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East turn out to be another factor underpinning demand for the safe-haven Gold price. Meanwhile, growing acceptance that the Fed will proceed with modest interest rate cuts over the next year lifted the US Dollar (USD) to its highest level since early August and beyond the 100-day Simple Moving Average (SMA) for the first time since July. This, in turn, might hold back traders from placing fresh bullish bets around the XAU/USD and cap the upside ahead of US macro data due later this Thursday. 

Daily Digest Market Movers: Gold price continues to draw support from rate-cut bets, Middle East concerns

  • The recent decline in Crude Oil prices is expected to ease inflationary pressures and allow major central banks to cut interest rates further, which continues to drive flows towards the non-yielding Gold price. 
  • The European Central Bank is on course to deliver its third interest rate cut of the year this Thursday, while a sharp drop in the UK inflation reaffirmed bets for a rate cut by the Bank of England in November. 
  • Moreover, the CME Group’s FedWatch Tool indicates over a 90% chance that the Federal Reserve will lower borrowing costs by 25 basis points next month, dragging the US bond yields to over a one-week low. 
  • Meanwhile, the US Dollar prolonged its well-established uptrend witnessed since the beginning of this month and climbed to its highest level since early August, though it did little to discourage the XAU/USD bulls. 
  • The recent comments from officials at the London Bullion Market Association’s annual conference suggest that central banks remain keen buyers of bullion to diversify their reserves for financial or strategic reasons.
  • The United Nations (UN) said that Israeli forces have fired at its peacekeeping position, forcibly entered a base, stopped a critical logistical movement, and injured more than a dozen of its troops in southern Lebanon.
  • According to a source familiar with the matter, Israel’s plan to respond to Iran’s October 1 attack is ready, raising the risk of a further escalation of geopolitical tensions and a full-blown war in the Middle East. 
  • China’s housing minister, during a press briefing this Thursday, said that the government will add 1 million village urbanization projects and will adopt monetisation measures for the said urbanisation projects.
  • Later during the early North American session, traders will take cues from the US economic docket – featuring the release of Retail Sales, Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index.
  • Furthermore, the ECB monetary policy decision might infuse volatility in the markets and provide some meaningful impetus to the safe-haven precious metal, allowing traders to grab short-term opportunities. 

Technical Outlook: Gold price seems poised to conquer $2,700 and prolong its well-established uptrend

From a technical perspective, the ongoing positive move could lift the Gold price to the $2,700 mark. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for an extension of a multi-month-old uptrend. The constructive outlook is reinforced by the fact that oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone. 

On the flip side, the $2,662-2,660 horizontal zone now seems to act as an immediate support ahead of the $2,647-2,646 area. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $2,630 intermediate support en route to the $2,600 neighborhood. 

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.