Gold price saw some dip-buying on Tuesday amidst a combination of supportive factors. The uncertainty surrounding the US Presidential election, along with Middle East tensions and anticipated interest rate cuts by major central banks, continue to offer support to the safe-haven precious metal. A modest US Dollar downtick and expectations of Federal Reserve interest rate cuts also helped boost the Gold price. However, despite the positive factors, slightly overbought conditions and elevated US Treasury bond yields could act as a headwind for XAU/USD.
The European Central Bank’s recent decision to lower interest rates for the third time this year, weak inflation data from the UK, and expectations of additional rate cuts by the Bank of England and the Federal Reserve have solidified bets for further global monetary policy easing. In the US, Vice President Kamala Harris and former President Donald Trump are closely contesting the November 5 Presidential election. Concerns over potential inflation-generating tariffs under a Trump win triggered an overnight selloff in US government debt, lifting US Treasury bond yields to nearly three-month highs.
The technical outlook for Gold price indicates an ascending channel, supporting a short-term uptrend towards the trend-channel resistance near the $2,750 region. However, the daily/4-hour Relative Strength Index (RSI) is signaling slightly overbought conditions, suggesting caution. Any corrective slide is expected to find support near the $2,720 region, followed by the lower end of the channel near $2,710. A break below this level could lead to further losses towards key support levels at $2,700, $2,685, and $2,662-2,661.
In terms of risk sentiment, the financial jargon of “risk-on” and “risk-off” refers to investors’ willingness to take on risk during different market conditions. In a “risk-on” market, investors are optimistic and more willing to buy risky assets. In contrast, a “risk-off” market sees investors playing it safe and opting for less risky assets. During “risk-on” periods, stock markets and most commodities, except Gold, rise due to a positive growth outlook. In “risk-off” markets, Bonds, Gold, and safe-haven currencies like the Japanese Yen, Swiss Franc, and US Dollar tend to benefit.
Major currencies like the Australian Dollar, Canadian Dollar, New Zealand Dollar, Ruble, and South African Rand tend to rise during “risk-on” periods. These currencies are heavily reliant on commodity exports for growth, which benefit from increased demand during positive economic conditions. On the other hand, the US Dollar, Japanese Yen, and Swiss Franc typically rise during “risk-off” periods. The US Dollar’s status as the world’s reserve currency, increased demand for Japanese government bonds, and Switzerland’s strict banking laws contribute to the strength of these currencies during times of crisis.
