Gold price remains depressed on positive risk tone, lacks follow-through amid geopolitical risks
|- Gold price remains under some selling pressure for the second successive day on Tuesday.
- A positive risk tone, along with elevated US bond yields, continues to weigh on the metal.
- Geopolitical risk and the uncertainty over the Fed’s rate-hike path should help limit losses.
Gold price (XAU/USD) struggles to capitalize on the previous day's late rebound from the $1,908 area and drifts lower for the second succeessive day on Tuesday. The precious metal maintains its offered tone heading into the European session and is pressured by a positive risk tone, which tends to undermine traditional safe-haven assets. Apart from this, elevated US Treasury bond yields, bolstered by firming expectations for further policy tightening by the Federal Reserve (Fed), turn out to be another factor weighing on the non-yielding yellow metal.
The downside for the Gold price, however, remains cushioned on the back of the raging Israel-Hamas conflict. This, along with growing acceptance that the Federal Reserve (Fed) will keep interest rates unchanged for the second straight time in November, should lend some support to the XAU/USD. Meanwhile, dovish Fed expectations keep the US Dollar (USD) bulls on the defensive and should further limit losses for the US Dollar-denominated commodity. Traders might also prefer to wait for cues about the Fed's future rate-hike path before placing directional bets.
Hence, the focus will remain glued to Fed Chair Jerome Powell's scheduled speech on Thursday, which will determine the next leg of a directional move for the Gold price. In the meantime, Tuesday's US economic docket – featuring monthly Retail Sales data and Industrial Production figures – will be looked upon for some impetus. Meanwhile, the recent failure near a technically significant 200-day Simple Moving Average (SMA) warrants caution before positioning for the resumption of a strong recovery move from the $1,810 region, or a multi-month low touched on October 6.
Daily Digest Market Movers: Gold price looks to develpments around the Israel-Hamas conflict
- Gold price might continue to attract some haven flows in the wake of the ongoing conflict between Israel and Hamas, which might broaden into a wider proxy war with Iran.
- The Israel Defence Forces chief said the army will soon enter the Gaza Strip to decimate the Hamas terror group.
- Israel had urged Palestinians to evacuate to the southern area of the Gaza City enclave ahead of an expected large-scale ground assault against the terror attacks.
- Israel Prime Minister Benjamin Netanyahu's office has denied reports of a cease-fire to allow humanitarian aid in and Gaza residents with international passports to escape into Egypt.
- Secretary of State Antony Blinken announced that President Biden will visit Israel on Wednesday to deliver a strong message of support to a key US ally.
- The US military ordered a second carrier strike group to the Eastern Mediterranean as part of its efforts to deter Iran and its proxies from expanding the conflict.
- Iran has repeatedly warned that a ground invasion of the long-blockaded Gaza would be met with a response from other fronts.
- "The possibility of pre-emptive action by the resistance axis is expected in the coming hours," Iran's foreign minister, Hossein Amir-Abdollahian said on Monday.
- Philadelphia Fed President Patrick Harker stated on Monday that the central bank should hold rates steady in the absence of some turn in the data.
- The US consumer inflation figures released last week, however, kept the door open for one more Fed rate hike move by the year-end.
- The prospects for further policy tightening by the Fed remain supportive of elevated US bond yields and continue to act as a tailwind for the US Dollar.
- Traders now look to the US Retail Sales data for some impetus, though the focus will remain glued to Fed Chair Jerome Powell's scheduled speech on Thursday.
- The US Retail Sales possibly grew by 0.3% in September, while sales excluding automobiles are expected to register a modest rise of 0.2% during the reported month.
Technical Analysis: Gold price needs to sustain above 200-day SMA for bulls to regain control
From a technical perspective, any subsequent decline is likely to attract fresh buyers and remain limited near the $1,900 round-figure mark, which coincides with the 100-day SMA. This, in turn, should act as a key pivotal point, which if broken will make the Gold price vulnerable to slide further towards the next relevant support near the $1,868 horizontal zone en route to the $1,860-1,855 region.
On the flip side, the 200-day SMA, nearing Friday’s swing high, around the $1,932-1,933 zone, might continue to act as an immediate strong barrier. Some follow-through buying will be seen as a fresh trigger for bulls and lift the Gold price towards the $1,945-1,947 supply zone. A sustained strength beyond the latter will set the stage for a further appreciating move towards the $1,970 region.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.27% | -0.39% | -0.14% | -0.70% | -0.03% | 0.06% | -0.19% | |
| EUR | 0.27% | -0.12% | 0.13% | -0.48% | 0.24% | 0.34% | 0.06% | |
| GBP | 0.38% | 0.11% | 0.22% | -0.32% | 0.34% | 0.44% | 0.19% | |
| CAD | 0.14% | -0.13% | -0.22% | -0.55% | 0.11% | 0.20% | -0.05% | |
| AUD | 0.72% | 0.44% | 0.33% | 0.57% | 0.67% | 0.77% | 0.49% | |
| JPY | 0.04% | -0.21% | -0.35% | -0.14% | -0.71% | 0.09% | -0.16% | |
| NZD | -0.06% | -0.30% | -0.45% | -0.20% | -0.75% | -0.09% | -0.28% | |
| CHF | 0.20% | -0.06% | -0.20% | 0.05% | -0.48% | 0.17% | 0.26% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
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.
What are the key assets to track to understand risk sentiment dynamics?
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.
Which currencies strengthen when sentiment is "risk-on"?
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.
Which currencies strengthen when sentiment is "risk-off"?
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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