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Gold keeps the red below $2,730, lacks follow-through amid US political uncertainty

  • Gold price attracts fresh sellers on Friday, though the downside remains cushioned. 
  • Bets for smaller Fed rate cuts underpin the USD and exert pressure on the XAU/USD.
  • Geopolitical risks and the US political uncertainty might lend support to the metal.

Gold price (XAU/USD) drifts lower during the Asian session on Friday, albeit it lacks follow-through selling and remains confined in the weekly range. The US Dollar (USD), for now, seems to have stalled its retracement slide from a three-month high touched on Wednesday amid growing acceptance of a less aggressive policy easing by the Federal Reserve (Fed). This, along with signs of stability in the equity markets, drives flows away from the safe-haven precious metal. 

That said, the US political uncertainty ahead of the November 5 presidential election and persistent geopolitical risks stemming from the ongoing conflicts in the Middle East offer some support to the Gold price. This, in turn, warrants some caution before confirming that the XAU/USD has topped out and positioning for any meaningful corrective decline. Traders now look forward to the US economic data to grab short-term opportunities later during the North American session. 

Daily Digest Market Movers: Gold price is pressured by bets for smaller Fed rate cuts, positive risk tone

  • The US Dollar stalls the overnight retracement slide from a nearly three-month top amid bets for smaller rate cuts by the Federal Reserve and prompts fresh selling around the Gold price on Friday. 
  • Traders no longer expect another oversized interest rate cut by the Fed at its November monetary policy meeting as the incoming US macro data suggested that the economy remains on strong footing. 
  • This, along with deficit-spending concerns after the US presidential election, led to a sell-off in the US bond market and lifted the benchmark 10-year Treasury yield to a three-month top on Wednesday.
  • The latest poll shows a tight race between Vice President Kamala Harris and the Republican nominee Donald Trump, which, along with geopolitical risks, could offer support to the safe-haven XAU/USD.
  • Israel continued with its military assault on Iranian-backed Hezbollah in Lebanon and intensified a siege on northern parts of Gaza, raising the risk of a further escalation of tensions in the Middle East. 
  • Traders now look to Friday’s US economic docket – featuring the release of Durable Goods Orders and the revised Michigan Consumer Sentiment Index – for short-term impetus heading into the weekend.

Technical Outlook: Gold price seems vulnerable, bearish head-and-shoulders pattern in the making

From a technical perspective, the recent price action over the past week or so constitutes the formation of a bearish head and shoulders pattern on short-term charts. The neckline support of the said pattern is pegged near the $2,705 region, which should now act as an immediate strong support. Some follow-through selling, leading to a subsequent fall below the $2,700 mark, should pave the way for deeper losses and drag the Gold price further towards the $2,675 support. The downfall could extend further towards the bearish pattern target near the $2,660 area.

On the flip side, the $2,640-2,645 region now seems to have emerged as an immediate strong barrier. Meanwhile, a sustained strength beyond will negate the head-and-shoulders pattern and allow the Gold price to aim towards challenging the all-time peak, around the $2,658-2,659 area touched earlier this week. The subsequent move up could lift the XAU/USD towards the $2,770 zone, representing a nearly four-month-old ascending trend-line resistance, en route to the $2,800 round-figure mark.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.