- Gold price advances to over a one-week high during the Asian session on Tuesday.
- Geopolitical tensions in the Middle East and retreating US bond yields lend support.
- A positive risk tone caps gains as traders look to the FOMC minutes and the US CPI.
Gold price (XAU/USD) registered strong gains of over 1% on Monday and settled above the mid-$1,800 in the wake of concerns about the geopolitical tensions in the Middle East. The safe-haven precious metal, which tends to benefit from political and economic turmoil, draws additional support from the ongoing retracement slide in the US Treasury bond yields, led by reduced bets for further rate hikes by the Federal Reserve (Fed). This, along with subdued US Dollar (USD) price action, pushes the non-yielding yellow metal higher for the third successive day on Tuesday.
Gold price climbs to over a one-week high during the Asian session and has now recovered over $50 from a seven-month low touched last Friday. The intraday uptick, however, lacks follow-through buying as a generally positive tone around the equity markets is holding back bullish traders from placing fresh bets around the XAU/USD. Investors also seem reluctant and prefer to wait on the sidelines ahead of this week’s key releases from the United States (US) – the FOMC meeting minutes and the consumer inflation figures on Wednesday and Thursday, respectively.
Daily Digest Market Movers: Gold price remains supported by geopolitical tensions and retreating US bond yields
- Military conflict between Israeli forces and Palestinian Islamist group Hamas continues to drive some haven flows, lifting the Gold price to over a one-week high on Tuesday.
- 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 leads to a further decline in the US Treasury bond yields, which keeps the US Dollar bulls on the defensive and further benefits the XAU/USD.
- The markets, however, are still pricing in the possibility of at least one more Fed rate hike by the end of this year, which should limit the downside for the US bond yields and the USD.
- Investors now look to the FOMC meeting minutes and the US consumer inflation figures, due on Wednesday and Thursday, respectively, for cues about the Fed’s next policy move.
Technical Analysis: Gold price struggles to capitalize on its modest intraday uptick to a fresh one-week high
From a technical perspective, some follow-through buying beyond the $1,865 level should pave the way for additional gains, towards the next relevant hurdle near the $1,885 area. 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. A sustained strength beyond will suggest that the Gold price has formed a near-term bottom and pave the way for additional gains towards testing the 200-day SMA, currently pegged near the $1,928-1,930 region.
On the flip side, any meaningful decline might now find some support near the $1,855-$1,850 zone ahead of the $1,835-1,834 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. Furthermore, the occurrence of a death cross on the daily chart, wherein the 50-day SMA is holding well below the 200-day SMA, warrants caution for bullish traders and before positioning for further gains.
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 Canadian Dollar.
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).
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.