Gold price witnessed a minor pullback from the record high, around the $2,589-$2,590 area touched the previous day, and closed in the red for the first time in the last four days on Tuesday. Traders opted to wait on the sidelines ahead of key central bank events before placing fresh bets. The Federal Reserve (Fed) will announce its decision at the end of a two-day meeting later this Wednesday, followed by the Bank of England (BoE) meeting on Thursday and the Bank of Japan (BoJ) policy update on Friday. The uncertainty surrounding these events has led to a cautious approach from traders in the gold market.
The extensive pricing for an oversized interest rate cut by the Fed fails to assist the US Dollar (USD) in capitalizing on the overnight bounce from its lowest level since July 2023, leading to increased demand for the non-yielding Gold price. However, a 25 basis points (bps) rate cut could benefit the USD and weigh on the commodity. Despite this, escalating conflicts in the Middle East and US political uncertainty ahead of the November presidential election may offer support to gold and limit potential downside risks. Therefore, any corrective pullback is currently viewed as a buying opportunity by market participants.
Bets for a more aggressive policy easing by the Federal Reserve are expected to attract dip-buyers in gold on Wednesday, thereby preventing a significant pullback from the all-time high. Market expectations predict a 65% chance of a 50-basis points rate cut by the Fed at the end of their upcoming meeting. Additionally, geopolitical tensions, such as the recent explosions in Lebanon and North Korea’s missile tests, are driving demand for safe-haven assets like gold. The outcome of the FOMC policy decision is eagerly awaited as it could provide a fresh impetus to the XAU/USD pair.
From a technical standpoint, the Gold price may see further upside potential if it breaks above the $2,589-$2,590 region and surpasses the all-time peak. A move above $2,600 could lead to testing the top boundary of a short-term ascending channel. On the other hand, a decline below the overnight swing low may pave the way for deeper losses towards the $2,530-$2,525 range. The $2,500 mark is seen as a pivotal point, with potential buyers likely to step in to limit further declines. Overall, technical indicators suggest a possible extension of the recent uptrend in gold prices.
Gold has historically served as a store of value and medium of exchange, with its use as a safe-haven asset and hedge against inflation and depreciating currencies gaining popularity in recent times. Central banks are major holders of Gold, with emerging economies like China, India, and Turkey quickly increasing their reserves. The precious metal has an inverse correlation with the US Dollar and US Treasuries, with its price influenced by a wide range of factors, including geopolitical instability, interest rates, and the performance of the Dollar. As the FOMC decision approaches, investors are closely monitoring gold prices for potential trading opportunities.
In conclusion, the current landscape for gold prices is influenced by uncertainty surrounding key central bank events, market expectations of a rate cut by the Federal Reserve, geopolitical tensions, and technical factors. While the precious metal faces some resistance at the all-time peak, the overall sentiment remains positive as traders look for potential buying opportunities. As the Fed announces its decision and economic projections, including the ‘dot plot,’ investors can expect increased volatility and potential shifts in the XAU/USD pair. It remains crucial for traders to stay informed and adapt their strategies accordingly to navigate the changing dynamics of the gold market.
