- Gold price attracts some dip-buying on Tuesday following an intraday slide to the $1,990 region.
- Hawkish Fed expectations, elevated US bond yields and a modest USD strength could cap gains.
- Receding safe-haven demand further warrants caution for bulls ahead of the key FOMC decision.
Gold price (XAU/USD) reverses an intraday dip to the $1,990 area and climbs to a fresh daily peak during the early part of the European session. The precious metal, however, remains below the $2,000 psychological mark amid expectations that the Federal Reserve (Fed) will keep the door open for one additional rate hike in 2023 to bring inflation back to its 2% target. The hawkish outlook remains supportive of elevated US Treasury bond yields, which helps revive the US Dollar (USD) demand and might cap the non-yielding yellow metal.
Apart from this, Israel's more measured approach to its incursion into Gaza has eased fears about a broadening crisis in the Middle East and further undermines the safe-haven Gold price. That said, the risk of a further escalation in the Israel-Hamas conflict remains, which, along with the uncertainty over the economic recovery in China, assists the XAU/USD in attracting some dip-buying near the $1,990 region. The emergence of some dip-buying, meanwhile, warrants some caution before positioning for any meaningful corrective decline.
Traders might also opt to remain on the sidelines ahead of a two-day FOMC monetary policy meeting, starting this Tuesday. In the meantime, the US economic docket – featuring the release of the Chicago PMI and the Conference Board's Consumer Confidence Index – might influence the USD price dynamics and provide some impetus to the Gold price. The aforementioned fundamental backdrop, meanwhile, warrants some caution for aggressive traders and before positioning for the next leg of a directional move heading into the key central bank event risk.
Daily Digest Market Movers: Gold price continues to draw haven flows on the back of haven flows
- Gold price struggles to gain any meaningful traction and remains below a multi-month peak touched last week, though lacks follow-through selling.
- The precious metal remains on track for an 8% rise this month – the most since November 2022 – in the wake of safe-haven demand stemming from the Middle East crisis.
- China leads record central bank buying of gold globally in the first nine months of the year, as its looks to reduce reliance on US Dollar for reserves holding – Financial Times
- Global gold demand excluding over-the-counter (OTC) trading slipped 6% in the third quarter as central bank buying fell short of last year's record levels and consumption by jewellers declined – WGC
- Official sector gld purchases hit 800 tons, more than in any January-September period in WGC data going back to 2000, and are expected to approach their 2022 level in the full year.
- Investors seem reluctant to place aggressive directional bets and look to the Federal Reserve’s near-term monetary policy outlook for a fresh impetus.
- The Fed is widely expected to keep interest rates steady at a 22-year high at the end of its two-day monetary policy meeting on October 31-November 1.
- The Fed is scheduled to announce its decision on Wednesday and is widely anticipated to hold interest rates steady in a range of 5.25%-5.50%, or the highest in 22 years.
- Investors will look for cues about the future rate-hike path, which, in turn, will influence the USD and provide a fresh directional impetus to the Gold price.
- The US economy remains resilient and inflation is still above the Fed's 2% target level, which should allow the US central bank to stick to its hawkish stance.
- Fed Chair Jerome Powell had warned earlier this month that inflation was still too high and more rate increases are possible if the economy stays surprisingly hot.
- The Bank of Japan once again underdelivers and defies market expectations for a change to the 10-year JGB yield ceiling from 1% to perhaps 1.25% or 1.50%.
- Easing geopolitical tension in the Middle East dent demand for traditional safe-haven assets and also contributes to a mildly offered tone around the XAU/USD.
- China's Manufacturing PMI shrinks and growth in the services sector slowed in October, fuelling concerns about the worsening conditions in the world's second-largest economy.
Technical Analysis: Gold price struggles to capitalize on the intraday uptick beyond the $2,000 mark
From a technical perspective, the Relative Strength Index (RSI) on the daily chart has eased from overbought territory and supports prospects for the emergence of some dip-buying around the Gold price. Hence, any subsequent decline is more likely to find support near the $1,986-1,985 horizontal resistance breakpoint. A convincing break, however, might prompt some technical selling and drag the XAU/USD further towards the $1,964 intermediate support en route to last week's swing low, around the $1,954-1,953 region.
On the flip side, the $2,000 round figure, followed by the multi-month top, around the $2,005 area touched last Friday, now seems to act as immediate hurdles. A sustained strength beyond should pave the way for an extension of a three-week-old bullish trend and lift the Gold price to the next relevant barrier near the $2,022 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.
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).
Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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