The Gold price remains on the defensive as investors have reduced their bets for a 50 basis points Fed rate cut in November. The US Dollar has consolidated its gains from last week, contributing to capping the XAU/USD. Despite this, geopolitical risks could continue to act as a tailwind and limit losses for the precious metal.
The Gold price has been consolidating in a familiar range over the past week amid mixed fundamental cues. The upbeat US monthly employment details have forced investors to price out the possibility of another oversized interest rate cut by the Federal Reserve in November. This has kept the US Dollar supported near a seven-week top, which, along with a positive risk tone, acts as a headwind for Gold.
Geopolitical tensions in the Middle East may provide some support for the safe-haven status of Gold and help limit potential losses. The recent range-bound price action suggests indecision among traders regarding the next directional move. It would be wise to wait for strong follow-through selling before confirming that the XAU/USD has peaked and considering any meaningful corrective decline in the absence of significant market-moving US macro data.
The blowout US employment details from Friday have tempered market expectations for a more aggressive policy easing by the Federal Reserve, further undermining demand for Gold. The US Labor Department reported strong job growth in September, beating estimates by a large margin and leading to a decrease in the Unemployment Rate. Traders now anticipate a 95% chance of a 25 basis points rate cut by the Fed at the November policy meeting.
From a technical perspective, Gold remains in a bullish consolidation phase following a recent surge to a record peak. Oscillators on the daily chart are positive, suggesting the path of least resistance is still upwards. Immediate support for Gold lies around the $2,630 area, with a break below potentially leading to a drop below $2,600. On the upside, a break above $2,670-$2,672 could signal a move towards the all-time high and beyond.
Gold holds a significant role in history as a store of value and medium of exchange. Nowadays, it is also viewed as a safe-haven asset, an inflation hedge, and a protection against depreciating currencies. Central banks are major Gold holders, increasing their reserves to improve currency strength, especially during turbulent times. The inverse correlation with the US Dollar and US Treasuries makes it valuable for diversification and risk management.
Various factors can impact Gold prices, including geopolitical instability, lower interest rates, and the behavior of the US Dollar. As a yield-less asset, Gold tends to rise with lower interest rates and is negatively impacted by a strong Dollar. Geopolitical fears and economic uncertainties can quickly drive Gold prices upward, reinforcing its safe-haven status.
