- Gold price trades with a negative bias for the fifth straight day amid smaller Fed rate cut bets.
- A modest USD downtick, along with geopolitical risks, could offer support to the XAU/USD.
- Traders look to the FOMC minutes and the US inflation figures for a fresh directional impetus.
Gold price (XAU/USD) ticks lower for the fifth straight day and drops to over a one-week low, closer to the $2,630 trading range support during the early European session on Tuesday. Investors have been paring their bets for another oversized interest rate cut by the Federal Reserve (Fed) in November, which, in turn, is seen as a key factor undermining demand for the non-yielding yellow metal. The downside, however, remains cushioned in the wake of a modest US Dollar (USD) weakness, which tends to benefit the USD-denominated commodity.
Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East could offer some support to the safe-haven Gold price. Traders might also refrain from placing aggressive directional bets and prefer to move to the sidelines ahead of the release of the FOMC meeting minutes on Wednesday. Apart from this, the US Consumer Price Index (CPI) and the US Producer Price Index (PPI), due on Thursday and Friday, respectively, will influence the near-term USD price dynamics and provide a fresh impetus to the XAU/USD.
Daily Digest Market Movers: Gold price is pressured by fading hopes for larger Fed rate cut
- The upbeat US jobs report for September released on Friday prompts traders to pare bets for a more aggressive policy easing by the Federal Reserve and undermines the Gold price.
- According to CME’s FedWatch tool, market participants are currently pricing in an 85% chance of a 25 basis points rate cut at the next FOMC monetary policy meeting in November.
- The yield on the benchmark 10-year US government bond moved past the 4% threshold for the first time in two months, while the US Dollar moved away from a seven-week high.
- Minneapolis Fed President Neel Kashkari noted on Monday that the overall balance of risks has now shifted away from higher inflation, towards maybe higher unemployment.
- Separately, St. Louis Fed President Alberto Musalem said that he supports additional interest rate cuts and that the economic performance will determine the path of monetary policy.
- Hezbollah fired rockets at Israel’s port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a couple of buildings in the southern suburbs of Beirut.
- Investors remain concerned that Middle East tensions could turn into a wider conflict, which might act as a tailwind for the safe-haven XAU/USD and help limit deeper losses.
- China’s state planner – the National Development and Reform Commission (NDRC) – said this Tuesday that the downward pressure on China’s economy is increasing.
- Traders now look to the release of the FOMC meeting minutes on Wednesday, which will be followed by the latest US inflation figures on Thursday and Friday, respectively.
Technical Outlook: Gold price could accelerate the decline once $2,630 pivotal support is broken
From a technical perspective, the $2,632-2,630 area, or the lower boundary of a short-term trading range, might continue to protect the immediate downside. A convincing break below might prompt some technical selling and drag the XAU/USD below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the next relevant support near the $2,535-2,530 region en route to the $2,500 psychological mark.
Meanwhile, oscillators on the daily chart are holding in positive territory and favor bullish traders. That said, the $2,670-$2,672 area might continue to act as an immediate barrier. This is followed by the $2,685-2,686 zone or the all-time high touched in September, and the $2,700 mark, which if cleared will be seen as a fresh trigger for bulls and set the stage for an extension of a well-established multi-month-old uptrend.
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.
