Gold price (XAU/USD) sticks to its intraday gains through the first half of the European session and currently trades around the $2,735 region, just below the all-time peak touched the previous day. Against the backdrop of persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, the uncertainty surrounding the November 5 US Presidential election acts as a tailwind for the safe-haven precious metal.
Furthermore, the expected interest rate cuts by major central banks and a modest US Dollar (USD) downtick underpin demand for the non-yielding Gold price. Meanwhile, expectations for a less aggressive policy easing by the Federal Reserve (Fed) lift the US Treasury bond yields to their highest level in almost three months. This should limit the USD corrective slide and cap gains for the commodity amid slightly overbought conditions.
From a technical perspective, the recent move-up witnessed over the past two weeks or so has been along an ascending channel. This points to a well-established short-term uptrend and supports prospects for a move towards challenging the trend-channel resistance, currently pegged near the $2,750 region. That said, the Relative Strength Index (RSI) on daily/4-hour charts is flashing slightly overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for the next leg up.
Meanwhile, any corrective slide now seems to find some support near the $2,720 region. This is closely followed by the lower end of the aforementioned channel, currently pegged near the $2,710 area, which if broken decisively should pave the way for deeper losses. The subsequent fall could drag the Gold price below the $2,700 mark, towards the $2,685 support. The latter should act as a key pivotal point, below which the XAU/USD could accelerate the decline towards the $2,662-2,661 resistance breakpoint, now turned support.
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.
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.
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.
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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