- Gold rallies ever closer to its previous all-time high at $2,685.
- A decline in manufacturing activity in the state of New York triggered the latest bout of buying.
- A break above would signal a new all-time high and an extension of the dominant bull trend.
Gold (XAU/USD) extends its recovery to just shy of the $2,685 all-time high on Wednesday after market jitters caused by a dip in US Manufacturing data on Tuesday led to a decline in the US Dollar (USD), a fall in US Treasury yields and a downward revision to the expected path of US interest rates. Lower expected interest rates are bullish for Gold as they reduce the opportunity cost of holding the non-interest paying asset.
Gold rises after US Manufacturing data miss
Gold strengthens after the NY Empire State Manufacturing Index declined into negative territory in October, registering minus 11.4 following an 11.5 rise in September and undershooting expectations of 2.3. This took the index to its lowest level in five months after August’s brief-lived recovery.
That said, the upside for Gold may be limited as Federal Reserve (Fed) officials refrain from adopting a too dovish stance judging from recent commentary. On Tuesday, Bank of San Francisco Fed President Mary Daly said she saw one or two more rate cuts this year, “If forecasts are met.” Her speech scored a neutral 5.8 on the FXStreet FedTracker, which uses a custom AI to gauge the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10. This was above her long-running average of 4.5.
Federal Reserve Bank of Atlanta President Raphael Bostic, meanwhile, scored a 6.2 on the FedTracker, which was also above his average of 5.1. Bostic opined the “US economy is doing well,” and that he did not see a recession on the horizon.
Currently, markets are pricing in almost a 94% chance of a 25 basis point cut in the fed funds rate in November and a 6% probability of no-change at all, according to the CME FedWatch tool.
Gold market movers on the calendar
Investors now look ahead to US September’s Retail Sales data on Thursday and a speech from Fed Governor Waller on Friday for further guidance.
Elsewhere, elevated tensions in the Middle East could help sustain upward momentum for Gold, particularly amid heightened expectations Israel will launch an imminent retaliatory attack on Iran.
Technical Analysis: Gold closes in all-time high
Gold extends another leg higher as it recovers from the October 10 low following the conclusion of a three-wave (abc) counter-trend reaction.
XAU/USD 4-hour Chart
Gold has broken above key resistance at around $2,670, and it is closing in on the $2,685 all-time high. A break above that level would indicate a continuation to the next target at $2,700 – a round number and psychological level.
Gold is in an uptrend on a short, medium, and long-term basis, and given the theory that “the trend is your friend,” the odds continue to favor more upside.
It would require a break below $2,600 (low of wave c on the chart) to flip the uptrend and turn the short and medium-term outlooks bearish.
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.
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