Gold prices stage a rebound off a daily low of $3,989, rising over 1% on Tuesday even as the US Dollar and US Treasury yields rose. Falling Oil prices provide a leg up for the yellow metal, while investors brace for the Federal Reserve’s (Fed) decision on Wednesday. The XAU/USD trades at $4,061.
Technical Analysis
From a technical standpoint, Gold formed a "bullish harami" candle pattern, which was confirmed today as XAU/USD rises above October’s 23-day high of $4,034. Although momentum favors buyers in the short term, the Relative Strength Index (RSI) is bearish, so caution is warranted.
On the upside, the next area of interest is a resistance trendline drawn from around September highs, near $4,100. A breach of the latter will result in an exposure of $4,200. The next key resistance levels are the 100-day Simple Moving Average (SMA) at $4,219 and the 50-day SMA at $4,288.
If XAU/USD tumbles below $4,000, this opens the door for testing last Friday’s low of $3,975. The next key support levels are the July 17 low of $3,959 and the year-to-date (YTD) low of $3,941.
Fundamental Analysis
XAU/USD rebounds despite rising US yields as falling Oil prices ease inflation
Today’s US data failed to provide a meaningful signal for Gold’s direction, with the precious metal opening lower before turning green. Geopolitics are driving price action after West Texas Intermediate (WTI), the US Oil benchmark, fell more than 1% to $100.05 per barrel.
The Middle East conflict seems far from a swift resolution as talks between the US and Iran seem to have stalled. According to recent new reporting, the US and Israel are likely to resume their attack on Tehran following Israel and US midterm elections, which pushed WTI prices above the $100.00 threshold on Monday.
The US housing data was softer than expected, though it was mostly ignored by market participants. Consumer Confidence improved in October from 84.2 to 91.7, according to the Conference Board, as Americans grew optimistic about the labour market and business conditions. On the contrary, inflation expectations were unchanged from the previous figure of 5.8%.
Durable Goods Orders rose 1.8% in September, up from 0.1%, as business spending stayed strong amid AI infrastructure expansion. Meanwhile, the ADP Employment Change 4-week average eased to 16.8K from 18.5K, signaling modest labour-market cooling.
Traders' focus is on the Fed, not on the monetary policy statement, unless it shows an aggressive hawkish tilt. Money markets see a 9% chance of a hike, which would be a surprise ahead of the midterm US elections. Eyes are on Fed Chair Kevin Warsh's speech, which could delineate the next move for the December meeting.
Worth noting that alongside the Fed, two other central banks are expected to increase rates, amid fears that energy prices would continue to trend higher. The European Central Bank (ECB) decision arrives on Thursday, followed by the Bank of Japan (BoJ) on Friday. The ECB is expected to leave rates unchanged on Thursday.
Data from Prime Terminal shows an 83% chance of a 25-basis-point rate increase by the Fed in December. Although the odds are positive, they continue to trend lower compared to last week’s 90%.
Besides this, traders are also eyeing the release of US Gross Domestic Product (GDP) figures and the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index on Thursday.
XAU/USD Forecast Poll
1 Week
- 0%
- Bullish
- 0%
- Bearish
- 100%
- Sideways
1 Month
- 86%
- Bullish
- 14%
- Bearish
- 0%
- Sideways
1 Quarter
- 86%
- Bullish
- 14%
- Bearish
- 0%
- Sideways
Gold (XAU/USD)
In the Forex market, Gold functions as a currency. The particularity of Gold is that it is traded against the United States Dollar (USD), with the internationally accepted code for gold being XAU.
Known as a safe-haven asset, Gold is expected to appreciate in periods of market volatility and economic uncertainty. 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.
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. The United States is the country that holds the biggest resources of Gold in the world.
The XAU/USD pair tells the trader how many US Dollars are needed to purchase one troy ounce of Gold.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold prices escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher borrowing costs usually weigh on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars. A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Organizations that influence XAU/USD
- WGC (World Gold Council) is the market development organization for the Gold industry. Its aim is to stimulate and sustain demand for the precious metal.
- LBMA (London Bullion Market Association) is an organization whose members participate in this wholesale over-the-counter market for trading Gold and Silver. It is loosely overseen by the Bank of England. Most LBMA members are major international banks, bullion dealers, and refiners.
- COMEX (Commodity Exchange) is the primary market for trading metals. The COMEX merged with the New York Mercantile Exchange (NYMEX) in 1994 and joined the CME Group in 2008.
- CGSE (Chinese Gold and Silver Exchange Society) is an organization of Gold trading firms in Hong Kong that are participants of the Chinese Gold and Silver Exchange, the first exchange in Hong Kong.
- Central banks like the Federal Reserve (Fed), the European Central Bank (ECB) or the People's Bank of China (PBoC) significantly influence Gold prices through their monetary policies.
People that influence XAU/USD
- Neal Froneman, the World Gold Council's Chairman.
- Scott Bessent, the US Treasury Secretary.
- Xi Jinping, President of the People's Republic of China.
- The London Bullion Market Association members.
Circumstances that influence XAU/USD
The main variables traders should monitor to understand Gold's position are:
- Demand and supply: The balance between global Gold demand and its availability impacts its price.
- Economic uncertainty and currency devaluation: Gold is widely known as a safe-haven asset for investors in periods of economic uncertainty or when a currency faces devaluation.
- Practical applications: The use of Gold in technology innovations, jewelry manufacturing and other industrial applications.
Assets that influence XAU/USD
- Currencies: The US Dollar (USD) and the Euro (EUR) are the primary currencies influencing Gold prices. Other important currency pairs include EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD, and USD/CAD.
- Commodities: Silver and Gold are the most important precious metal commodities.
- Bonds: Influential fixed-income securities include the German Bund (a federal government-issued bond) and the US Treasury Note (T-Note).
- Indices: Key indices related to Gold and mining include the HUI (NYSE Arca Gold BUGS), the XAU (Philadelphia Gold and Silver Index) and the GDM (NYSE Arca Gold Miners Index).
- Exchanges: The most important stock exchanges for Gold are the New York Mercantile Exchange (COMEX), the Chicago Board of Trade, the Euronext/LIFFE, the London Bullion Market, the Tokyo Commodity Exchange, the Bolsa der Mercadorias e Futuros and the Korea Futures Exchange.