Gold price has been on a downward trend for the past six trading days as the US Dollar continues to strengthen. Traders have been pricing out the possibility of another Federal Reserve interest rate cut of 50 basis points in November, leading to an increase in the value of the Dollar. This makes investing in Gold more expensive for investors. Additionally, higher yields on interest-bearing assets have increased the opportunity cost of holding Gold as it is a non-yielding asset.
Despite the recent downtrend in Gold price, the downside is expected to be limited due to escalating geopolitical tensions in the Middle East region. The war between Israel and Iran-backed-Hezbollah has intensified, leading to increased uncertainty and investor interest in safe-haven assets like Gold. Historically, Gold tends to perform well during times of geopolitical turmoil.
Investors are anxiously awaiting the release of the FOMC Minutes from the September meeting, as well as the US inflation data for September. The FOMC Minutes will provide insight into the reasoning behind the Fed’s decision for a sizable rate cut of 50 bps and offer fresh cues about inflation and the economic outlook. The inflation data will be crucial in shaping market expectations for the Fed’s interest rate outlook for the rest of the year.
Technical analysis shows that Gold price has corrected to near $2,610 from its recent all-time high of $2,685. Profit-booking has driven the correction, but the overall trend remains bullish. The 20- and 50-day Exponential Moving Averages (EMAs) are sloping higher, indicating a positive trend. The 14-day Relative Strength Index (RSI) suggests a weakening of momentum, but the overall upside trend remains intact.
Gold has a long history of being a safe-haven asset and store of value. It is widely used as a hedge against inflation and depreciating currencies due to its perceived stability. Central banks are the largest holders of Gold, using it to diversify their reserves and strengthen the perceived value of their currencies. The price of Gold is influenced by various factors, including geopolitical instability, interest rates, and the value of the US Dollar.
In summary, the recent drop in Gold price can be attributed to the strengthening US Dollar and reduced expectations of a larger-than-expected rate cut by the Federal Reserve. Despite this, ongoing geopolitical tensions and uncertainty in the global economy are expected to limit the downside in Gold price. Investors will closely monitor upcoming economic data releases and the FOMC Minutes for further guidance on the future direction of Gold price.
