Gold (XAU/USD) sticks to modest intraday losses through the Asian session on Monday, though it lacks strong follow-through selling and currently trades just below the $4,050 level, down 0.50% for the day. The US Dollar (USD) struggles to capitalize on last week’s strong move up to the highest level since late May amid mixed signals from US Federal Reserve (Fed) officials, which, in turn, is seen offering some support to the commodity.
Apart from this, persistent geopolitical uncertainties stemming from the intensifying Russia-Ukraine war and fresh conflicts in the Middle East turn out to be another factor underpinning the safe-haven Gold. However, a generally positive tone around the equity markets caps the safe-haven XAU/USD pair as traders keenly await this week’s release of the preliminary US Q3 GDP and the Personal Consumption Expenditure (PCE) Price Index.
Daily Digest Market Movers: Gold struggles to lure buyers despite a USD downtick and renewed Fed rate cut bets
- New York Federal Reserve President John Williams described the current policy as modestly restrictive and told reporters on Friday that he sees room for the central bank to lower rates in the near term. Traders were quick to react and are now pricing in around a 67% chance that the Fed will lower borrowing costs in December.
- However, other Fed officials maintained a hawkish stance, with Dallas Fed President Lorie Logan calling for leaving the policy rate on hold for the time being. This assists the US Dollar in preserving its recent gains to the highest level since late May and exerts some downward pressure on the Gold during the Asian session on Monday.
- Meanwhile, the renewed optimism that the US central bank will cut interest rates again in December boosts investors’ appetite for riskier assets. This allows most Asian stocks to rise on Monday and recover some of the recent losses, which, in turn, is seen as another factor that undermines demand for the safe-haven precious metal.
- Ukraine launched a significant drone attack on a heat and power station in Russia’s Moscow region. Russia, on the other hand, said that it had captured three more villages in eastern Ukraine. Meanwhile, US President Donald Trump has given Ukraine until November 27 to approve a 28-point peace plan to end the nearly four-year war.
- Ukraine is seeking changes to the proposal that accepts some of Russia’s hardline demands and makes painful concessions in order to end the invasion. This keeps geopolitical risks in play and might continue to offer some support to the precious metal, warranting some caution before positioning for any further depreciating move.
- Traders now look forward to a rather busy US economic docket this week, featuring the delayed release of the Producer Price Index (PPI), Retail Sales, and the Conference Board’s Consumer Confidence Index on Tuesday. This will be followed by the preliminary Q3 GDP and the Personal Consumption Expenditure (PCE) Price Index on Wednesday.
- The latter would offer more cues about the Fed’s future rate-cut path, which, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the non-yielding yellow metal.
Gold approaches $4,030 confluence support amid bearish technical setup
From a technical perspective, the XAU/USD pair, so far, has managed to defend an upward-sloping trend-line extending from late October. The said support is currently pegged near the $4,030 region and now coincides with the 200-period Exponential Moving Average (EMA) on the 4-hour chart. This, in turn, should act as a key pivotal point, which, if broken decisively, might turn the Gold price vulnerable to weaken further below the $4,000 psychological mark and test last week’s swing low, around the $3,968-3,967 area. The downward trajectory could extend further the $3,931 support en route to the $3,900 mark and late October swing low, around the $3,886 region.
On the flip side, the $4,080 supply zone now seems to act as an immediate hurdle ahead of the $4,100 mark. A sustained move and acceptance above the latter could lift the Gold price to the next relevant hurdle near the $4,152-4,155 region. The momentum could extend further and allow the XAU/USD pair to climb further towards reclaiming the $4,200 round figure.
Risk sentiment FAQs
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.
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.
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.
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.
