- Gold price remains under some selling pressure for the second successive day on Tuesday.
- A modest USD strength is seen as a key factor that drags the metal to a nearly two-week low.
- Bets that the Fed is done raising rates might help limit losses amid the economic uncertainty.
Gold price (XAU/USD) continues losing ground for the second successive day on Tuesday and extends its descending trend through the first half of the European session. The US Dollar (USD) recovers further from its lowest level since September 20 touched on Monday and drags the commodity to a near two-week low, around the $1,965 area in the last hour. Furthermore, the fact that there have been no major developments in the Israel-Hamas conflict further contributes to driving flows away from the safe-haven precious metal.
That said, the persistent risk of a broadening crisis in the Middle East, along with the economic uncertainty, especially in China and Europe, keeps investors on edge. This is evident from a generally weaker tone around the equity markets and lends some support to the Gold price. Investors, meanwhile, seem convinced that the Federal Reserve (Fed) is done raising interest rates, which leads to a fresh leg down in the US Treasury bond yields and should limit losses for the non-yielding yellow metal. This, in turn, warrants caution for bearish traders.
Market participants now look to speeches by influential FOMC members, including Fed Chair Jerome Powell's appearance on Wednesday and Thursday, for cues about the further rate-hike path. This will play a key role in driving the near-term USD demand, which, along with geopolitics and the broader risks sentiment should provide a fresh directional impetus to the Gold price. In the meantime, Tuesday's release of Trade Balance data from the US will be looked upon for short-term opportunities later during the early North American session.
Daily Digest Market Movers: Gold price drops to a near two-week low on stronger US Dollar
- The uncertainty over the Federal Reserve's next policy move prompts some short-covering around the US Dollar and exerts pressure on the Gold price.
- The softer US jobs report released on Friday reinforces the view that the US central bank will maintain the status quo for the third straight meeting in December.
- Fed Governor Lisa Cook said on Monday that the central bank's current target interest rate is adequate to return inflation to the central bank's 2% target.
- Minneapolis Fed President Neel Kashkari noted that the US economy has proved to be very resilient and under-tightening will not get inflation back to 2% in a reasonable time.
- Investors now look to speeches by other influential FOMC members and will closely scrutinize comments by Fed Chair Jerome Powell on Wednesday and Thursday.
- The US Treasury bond yields struggle to capitalize on the overnight goodish rebound and turn back lower on Tuesday amid bets that the Fed is done raising rates.
- This, along with the risk of a further escalation in the Israel-Hamas conflict and economic uncertainty, should lend support to the safe-haven precious metal.
- The Eurozone economy contracted by 0.1% in the third quarter and the final Composite PMI for October indicated the region entered the last quarter on the back foot.
- Prime Minister Benjamin Netanyahu said Israel would consider tactical little pauses in Gaza fighting to facilitate the entry of aid or the exit of hostages.
- China’s trade balance fell sharply from $77.71 billion to $56.53 billion in October – its worst level since May 2022 – amid an unexpected surge in imports.
- Chinese exports fell more than expected, pointing to worsening overseas demand, especially from its biggest trade destinations – Europe and the US.
Technical Analysis: Gold price could extend the decline further towards the $1,954-1,953 support zone
From a technical perspective, acceptance below the $1,970 level might have already set the stage for additional losses towards the $1,954-1,953 area (September 24 low). The said area nears a previous strong horizontal resistance breakpoint near the $1,950-1,948 region and should act as a key pivotal point. A convincing break below might make the Gold price vulnerable to accelerate the slide towards the 200-day Simple Moving Average (SMA), currently pegged near the $1,934 area, en route to the $1,926-1,923 confluence, comprising the 100- and 50-day SMAs.
On the flip side, the $1,980 level now seems to act as an immediate hurdle ahead of the $1,991-1,992 region. The next relevant resistance is pegged near the $2,000 psychological mark and the post-NFP swing high, around the $2,004 zone. This is closely followed by the $2,009-2,010 area, or a multi-month top touched in October, which if cleared decisively will be seen as a fresh trigger for bullish traders and pave the way for additional gains.
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 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).
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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