Gold price (XAU/USD) remains depressed during the Asian session on Tuesday and is currently placed just above the lower boundary of a short-term range. Investors have been scaling back expectations of another oversized interest rate cut by the Federal Reserve (Fed) in November amid signs of still resilient US labor markets. This, in turn, is seen as a key factor acting as a headwind for the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) pulled back from a seven-week high touched on Friday as traders opt to move to the sidelines ahead of the release of the FOMC meeting minutes on Wednesday. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, will influence expectations about the Fed's rate-cut path. This will provide a fresh impetus to the USD and the Gold price.
In the meantime, geopolitical risks stemming from the ongoing conflicts in the Middle East should act as a tailwind for the safe haven Gold price and help limit any meaningful downfall. This, in turn, makes it prudent to wait for a sustained breakdown below a one-week-old trading range support before positioning for an extension of the XAU/USD's recent pullback from the all-time peak touched on September 26.
From a technical perspective, the $2,632-2,630 area, or the lower boundary of a short-term trading range, might continue to protect the immediate downside. A convincing break below might prompt some technical selling and drag the XAU/USD below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the next relevant support near the $2,535-2,530 region en route to the $2,500 psychological mark.
Meanwhile, oscillators on the daily chart are holding in positive territory and favor bullish traders. That said, the $2,670-$2,672 area might continue to act as an immediate barrier. This is followed by the $2,685-2,686 zone or the all-time high touched in September, and the $2,700 mark, which if cleared will be seen as a fresh trigger for bulls and set the stage for an extension of a well-established multi-month-old uptrend.
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.
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.
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.
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.