Gold refreshes daily top as Fed rate cut bets, geopolitical risks offset risk-on mood
- Gold attracts some dip-buyers on Friday, though the uptick lacks follow-through.
- Fed rate cut bets keep the USD bulls on the defensive and support the commodity.
- Geopolitical risks benefit the precious metal, though a positive risk tone caps gains.
Gold (XAU/USD) touches a fresh daily peak during the first half of the European session, though it lacks follow-through buying amid the upbeat market mood. The US Dollar (USD) struggles to capitalize on the previous day's bounce from a one-week low amid the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs two more times this year. This, along with persistent geopolitical tensions, continues to act as a tailwind for the precious metal.
Meanwhile, the global risk sentiment seems unfazed by a partial US government shutdown for the third straight day, which, in turn, is holding back the XAU/USD bulls from placing fresh bets. Traders now look forward to speeches from influential FOMC members, which will drive the USD demand and provide some impetus to the non-yielding Gold. Nevertheless, the XAU/USD pair remains on track to register strong gains for the seventh consecutive week.
Daily Digest Market Movers: Gold bulls retain control amid supportive fundamental backdrop
- The US Dollar staged a goodish recovery from a one-week low touched on Thursday and triggered an intraday turnaround in the Gold price from the vicinity of the $3,900 mark, or a fresh all-time peak. The precious metal, however, rebounded from the $3,820 area, though it lacks follow-through and ticks lower for the second straight day on Friday.
- US Treasury Secretary Scott Bessent warned on Wednesday that the government shutdown could hurt the economy more than those in the past, with potential hits to the GDP, growth, and the labor market. Traders, however, brushed aside worries amid expectations of a limited impact of a partial government shutdown on the economic performance.
- The optimism led to another session of record highs on Wall Street, and the spillover effect remains supportive of a generally positive tone around the Asian equity markets. This turns out to be another factor undermining demand for the safe-haven Gold during the Asian session, though any meaningful corrective fall still seems elusive.
- Traders ramped up their bets that the US Federal Reserve will lower borrowing costs two more times this year, in October and December, following Wednesday's disappointing release of the ADP report on private-sector employment. This could act as a headwind for the Greenback and continue to act as a tailwind for the non-yielding yellow metal.
- Meanwhile, the US reportedly will provide Ukraine with intelligence to support long-range missile strikes on Russian energy infrastructure. Trump approved the move, and US officials are urging NATO allies to do the same. This keeps geopolitical risks in play and should help limit any further corrective fall for the safe-haven precious metal.
- Important US macro data scheduled at the beginning of a new month, including the Nonfarm Payrolls (NFP) report, could be delayed due to the US government shutdown. Nevertheless, speeches from influential FOMC members could drive the USD demand and provide short-term impetus to the XAU/USD pair heading into the weekend.
Gold needs to surpass $3,863-3,865 to back the case for a move towards retesting all-time peak
The overnight breakdown below a one-week-old ascending trend-line backs the case for a further long unwinding amid still overbought daily Relative Strength Index (RSI). Any further slide, however, is more likely to find support near the overnight swing low, around the $3,820-3,819 region. This is followed by the $3,800 mark, which, if broken decisively, should pave the way for deeper losses. The subsequent downfall could drag the Gold price to the next relevant support near the $3,758-3,757 zone en route to the $3,735 region and the $3,700 round figure.
On the flip side, the ascending trend-line support breakpoint, around the $3,863-3,865 zone, now seems to act as an immediate hurdle, above which the Gold price could aim to retest the all-time peak, around the $3,896-3,897 region. Some follow-through buying beyond the $3,900 mark will be seen as a fresh trigger for the XAU/USD bulls and set the stage for an extension of the recent well-established uptrend.
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
