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Gold nears $4,100 on safe-haven demand, focus shifts to FOMC minutes | FXStreet

Gold (XAU/USD) is seen building on the previous day’s recovery from levels just below the $4,000 psychological mark, or a one-and-a-half-week low, and gaining positive traction for the second straight day on Wednesday. The global risk sentiment remains fragile amid concerns about the US economy, which keeps the US Dollar (USD) depressed below a one-week high and acts as a tailwind for the safe-haven precious metal.

Any meaningful USD depreciation, however, seems elusive on the back of reduced bets for another interest rate cut by the US Federal Reserve (Fed) in December. This, in turn, might cap the non-yielding Gold. Traders might also opt to wait for more cues about the Fed’s rate-cut path before placing fresh directional bets around the XAU/USD pair. Hence, the focus will remain on the release of FOMC minutes, due later this Wednesday, and the delayed US Nonfarm Payrolls (NFP) report on Thursday amid signs of a softening labor market.

Daily Digest Market Movers: Gold benefits from safe-haven flows and softer USD

  • Investors remain worried about the weakening economic momentum on the back of the longest-ever US government shutdown, which continues to weigh on investors’ sentiment and supports the safe-haven Gold through the Asian session on Wednesday.
  • Ukraine’s military on Tuesday said that it had struck military targets inside Russia using US-supplied ATACMS missiles. Amid the ongoing conflict, Ukrainian President Volodymyr Zelenskiy will travel to Turkey to revive stalled peace talks with Russia.
  • A US special envoy, Steve Witkoff, is expected to join the discussions. However, Kremlin spokesman Dmitry Peskov said that no Russian delegates would attend the talks. This keeps geopolitical risks in play and further offers support to the precious metal.
  • The US Dollar struggles to attract any meaningful buyers, though it holds steady near a one-week high amid less dovish Federal Reserve expectations. In fact, several Fed officials recently signaled caution on further monetary policy easing next month.
  • Fed Vice Chair Philip Jefferson said earlier this week that the central bank needs to proceed slowly. However, Fed Governor Christopher Waller continued to build the case for further rate cuts amid concerns over the labor market and the slowdown in hiring.
  • The US Labor Department reported that the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased to 1.957 million during the week ended October 18. This suggests an elevated unemployment rate in October.
  • Hence, the delayed release of the US Nonfarm Payrolls report for September, due on Thursday, will grab all the attention. This, along with the FOMC minutes, due later today, will offer cues about the Fed’s rate-cut path and influence the USD and the XAU/USD pair.

Gold could accelerate positive move once the $4,100 barrier is cleared

The commodity on Tuesday found decent support and bounced off the 200-period Exponential Moving Average (EMA) on the 4-hour chart. However, mixed oscillators on the said chart warrant caution before positioning for a further appreciating move. Meanwhile, the $4,100 round figure is likely to act as an immediate hurdle, which, if cleared, might trigger a short-covering rally and lift the Gold price to the $4,152-4,155 intermediate hurdle en route to the $4,200 mark.

On the flip side, the $4,037-4,036 area could protect the immediate downside ahead of the 200-period EMA on the 4-hour chart, currently pegged just ahead of the $4,000 mark. A convincing break below the latter could make the Gold price vulnerable to accelerate the fall towards the $3,931 support before eventually dropping to the $3,900 mark en route to the late October swing low, around the $3,886 region.

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.