Gold price remains below $2,750 as USD and bond yields surge on Trump enthusiasm

Source Fxstreet
  • Gold price ticks lower on Wednesday as the USD surges to a four-month high.
  • The Trump trade is back in play following the initial US election exit poll results. 
  • Expectations for a spike in volatility lend support to the safe-haven XAU/USD.

Gold price (XAU/USD) struggles to capitalize on the previous day's bounce from the $2,725-2,724 area, or a one-and-a-half week low and seesaws between tepid gains/minor losses during the Asian session on Wednesday. A strong pickup in the US Dollar (USD) demand, bolstered by exit polls indicating a lead for the Republican nominee Donald Trump in key swing states – acts as a headwind for the commodity. 

Apart from this, a sharp intraday surge in the US Treasury bond yields and the risk-on impulse turn out to be another factor keeping a lid on the non-yielding Gold price. That said, expectations for a further spike in volatility in the wake of the US election results hold back traders from placing aggressive bearish bets around the safe-haven precious metal, which, in turn, should help limit any meaningful downfall. 

Daily Digest Market Movers: Gold price bulls remain on the sidelines amid resurgent USD demand

  • The US Dollar surged to a nearly four-month top in reaction to the US election exit polls, which suggest that the vote is moving in former President Donald Trump's direction.
  • Georgia, a key swing state, was among the first of those with available exit polls, showing a Trump victory, and early exit poll results in Wisconsin also point to a Trump win.
  • Preliminary results of the exit poll from Pennsylvania, one of the most closely watched swing states, appear in favor of Vice President Kamala Harris, according to CBC News.
  • North Carolina exit polls show a close race while Nebraska District 2 initial results show Harris leading. CBC News called Indiana, Kentucky and West Virginia for Trump.
  • Rising odds of Trump winning the election fuel speculation about the launch of potentially inflation-generating tariffs and push the US Treasury bond yields sharply higher. 
  • The US election results clear out a major point of uncertainty for markets, triggering a fresh wave of risk-on trade and further contributing to capping the safe-haven Gold price.
  • The downside for the XAU/USD, however, is cushioned as traders remain cautious in the wake of the expected spike in volatility across the global financial markets.
  • Iran's plans for a retaliatory strike against Israel’s attack on its territory on October 26 continue to fuel worries about the risk of a further escalation of tensions in the Middle East.

Technical Outlook: Gold price traders await a breakout through a multi-day-old trading range

From a technical perspective, the $2,725-2,720 area might continue to act as immediate strong support, below which the Gold price could accelerate the slide towards testing sub-$2,700 levels. The latter represents the lower boundary of a short-term ascending trend channel extending from late July. A convincing break below should pave the way for an extension of the recent corrective pullback from the all-time peak touched last week and drag the XAU/USD toward the next relevant support near the $2,675 zone en route to the $2,657-2,655 region.

On the flip side, the $2,748-2,750 area now seems to have emerged as an immediate hurdle. The subsequent move up could lift the Gold price to the ascending trend-channel hurdle, currently pegged near the $2,780-2,785 region. This is closely followed by the $2,800 mark, which is likely to act as a key pivotal point. A sustained strength beyond will set the stage for the resumption of the prior well-established uptrend.

Gold FAQs

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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