Gold price eases from all-time peak, downside potential seems limited

• Gold price ticks lower, though it lacks follow-through and remains close to the record high.
• Bets for smaller Fed rate cuts, elevated US bond yields and the USD weigh on the XAU/USD. 
• Geopolitical risks, US political uncertainty and easing monetary policy regime offer support.

Gold price (XAU/USD) ticks lower during the Asian session on Wednesday, albeit lacking follow-through and remains close to the record peak touched the previous day. The US Dollar (USD) climbed to its highest level since early August amid the prospects of smaller interest rate cuts by the Federal Reserve (Fed), which triggered the recent upswing in the US Treasury bond yields to a three-month top. This, in turn, prompts some profit-taking around the non-yielding yellow metal amid slightly overbought conditions on the daily chart. 

Any meaningful corrective decline for the Gold price, however, seems elusive in the wake of geopolitical risks stemming from the ongoing conflicts in the Middle East and the US political uncertainty. Furthermore, the prevalent risk-off environment and the expected interest rate cuts by major central banks should contribute to limiting the downside for the XAU/USD. Hence, it will be prudent to wait for strong follow-through selling before confirming that the precious metal has topped out in the near-term and positioning for deeper losses.

Daily Digest Market Movers: Gold price bulls take a brief pause amid rising US bond yields and bullish USD

• The US Dollar rally remains uninterrupted amid firming expectations for a less aggressive policy easing by the Federal Reserve and exerts some downward pressure on the Gold price on Wednesday.
• According to CME Group's FedWatch Tool, traders pricing in a nearly 90% chance that the US central bank will lower borrowing costs by 25 basis points at the next monetary policy meeting in November.
• Moreover, rising odds of former President Donald Trump winning the November 5 US Presidential election next month fuel speculations about the launch of potentially inflation-generating tariffs.
• This leads to an extended selloff in the US bond market and pushes the yields to a multi-month peak, underpinning the buck and contributing to driving flows away from the non-yielding yellow metal.
• The yield on the benchmark 10-year US government bond hovered near 4.2% after topping that level on Tuesday for the first time since July amid renewed concerns about a resurgence in inflation.
• Hezbollah fired rockets at two bases near Tel Aviv and a naval base west of Haifa as the market await the impending Israeli strike against Iran in retaliation to the latter's ballistic missile attack on October 1.
• Meanwhile, diplomatic efforts, so far, have failed to bring an end to the year-long conflict in the Middle East, which weighs on investors' sentiment and should offer support to the safe-haven XAU/USD.
• Traders now look forward to the release of the US Existing Home Sales data for short-term impetus ahead of a scheduled speech by Richmond Fed President Thomas Barkin later during the US session.

Technical Outlook: Gold price could target dynamic ascending trend-channel resistance near the $2,767 area

From a technical perspective, the XAU/USD faced rejection near the $2,750 area, which is followed by the top boundary of a two-week-old ascending channel, around the $2,767 region. The said barrier should act as a key pivotal point, which if cleared decisively should pave the way for an extension of the recent well-established uptrend. The subsequent move up might then lift the Gold price to the $2,800 round-figure mark.

On the flip side, any subsequent slide is likely to find decent support near the $2,725 area, representing the lower end of the aforementioned trend channel. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $2,700 mark en route to the $2,680-2,675 support. The latter is near the 100-period Simple Moving Average (SMA) on the 4-hour charts and should act as a strong base.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.