Gold price corrects from one-week high on renewed USD buying, positive risk tone
- Gold price meets with some intraday selling after rising to over a one-week high on Tuesday.
- A positive risk tone and the emergence of fresh USD buying exert pressure on the XAU/USD.
- Geopolitical tensions in the Middle East could lend some support to the safe-haven commodity.
Gold price (XAU/USD) registered strong gains of over 1% on Monday and settled above the mid-$1,800s in the wake of the Israeli-Palestinian conflict. The safe-haven precious metal climbs to over a one-week high on Tuesday, albeit struggles to capitalize on the move and attracts some sellers near the $1,865 region. Despite the overnight dovish remarks by Federal Reserve (Fed) officials, the markets are still pricing in the possibility of at least one more rate hike by the end of this year. The outlook helps the US Treasury bond yields to stall the recent corrective decline and revive the US Dollar (USD) demand, which, in turn, is seen driving flows away from the non-yielding yellow metal.
Apart from this, a generally positive risk tone around the equity markets turns out to be another factor undermining the safe-haven Gold price. Any further decline, however, seems limited in the wake of escalating geopolitical tensions in the Middle East. Traders might also refrain from placing aggressive bets and prefer to wait for this week's key released from the United States (US) – the FOMC meeting minutes on Wednesday and the consumer inflation figures on Thursday. This could provide fresh cues about the Fed's future rate-hike path and provide some meaningful impetus to the XAU/USD.
Daily Digest Market Movers: Gold price is weighed down by a modest US Dollar strength
Bets for at least one more Fed rate hike by the end of this year help limit the downside for the US bond yields and revive the US Dollar demand, which, in turn, weighs on the Gold price.
Military conflict between Israeli forces and the Palestinian Islamist group Hamas might continue to drive haven flows and hold back bears from placing aggressive bets around the XAU/USD.
Fed officials struck a cautious tone about the need for further rate hikes and said that the recent rise in the long-term US Treasury bond yields would help the Fed in its battle against inflation.
Dallas Fed President Lorie Logan noted that the progress on inflation is encouraging and forced investors to trim their bets for another interest rate increase at the November meeting.
Fed Vice Chair Philip Jefferson also sounded less hawkish and suggested the central bank proceed carefully with any further increases in the benchmark federal funds rate.
The repricing of the Fed's rate-hike path could further act as a tailwind for the non-yielding yellow metal ahead of the FOMC meeting minutes and the US consumer inflation figures, due on Wednesday and Thursday, respectively.
Technical Analysis: Gold price could attract some haven flow amid the Gaza–Israel conflict
From a technical perspective, any subsequent fall is likely to find some support near a multi-day-old trading range resistance breakpoint, around the $1,835-1,833 region. A convincing break below the latter will suggest that the corrective bounce has run its course and drag the Gold price to the $1,820 support en route to the multi-month low, around the $1,810 zone. Some follow-through selling will validate the occurrence of a death cross on the daily chart, wherein the 50-day SMA is holding well below the 200-day SMA, and pave the way for a further depreciating move.
On the flip side, bulls might now wait for a sustained strength beyond the $1,865 level before positioning for a move towards the next relevant hurdle near the $1,885 region. This is closely followed by the $1,900 round figure, which nears the 50-day Simple Moving Average (SMA) and should now act as a key pivotal point. some follow-through buying will suggest that the Gold price has formed a near-term bottom and set the stage for a move towards testing the 200-day SMA, currently pegged near the $1,928-1,930 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.10% | 0.15% | 0.16% | 0.35% | 0.42% | 0.39% | 0.09% | |
| EUR | -0.09% | 0.06% | 0.06% | 0.25% | 0.33% | 0.29% | -0.02% | |
| GBP | -0.16% | -0.05% | 0.02% | 0.21% | 0.27% | 0.24% | -0.06% | |
| CAD | -0.17% | -0.04% | -0.02% | 0.19% | 0.27% | 0.21% | -0.07% | |
| AUD | -0.35% | -0.27% | -0.22% | -0.20% | 0.09% | 0.05% | -0.27% | |
| JPY | -0.43% | -0.34% | -0.30% | -0.27% | -0.10% | -0.10% | -0.35% | |
| NZD | -0.39% | -0.31% | -0.26% | -0.24% | -0.04% | 0.05% | -0.32% | |
| CHF | -0.06% | 0.02% | 0.09% | 0.08% | 0.30% | 0.35% | 0.30% |
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).
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
