Gold futures fell 0.57% early Monday as markets reacted to signs of easing in tensions in the Middle East. This cautious tone contributed to the view that an immediate escalation of conflict is less likely, prompting some investors to reassess the risk premium embedded in gold prices. However, geopolitical risks remain, as non-state actors, especially Iran-aligned Houthi militants, continue to strike oil-related targets in the Red Sea, maintaining the remaining risk premium in the market.
Technically, the market is limited in the near term, which usually indicates traders’ hesitation and impending volatility. The range is between $2758.53 and $2708.76. The market is currently moving between its pivot at $2733.64. A trader’s reaction to this level may set the tone. Trading across $2758.53 signals a resumption of the uptrend, while moving across $2708.76 could trigger a breakout of $2681.46. The gold/USD pair is trading at $2,730.60, down $16.62 or -0.60%. Apart from this, the modest decline of the US dollar (USD) from its highest level since July 30 turns out to be another factor providing some support to the commodity.
Dollar Strength and US Treasury Yields weigh on gold
The US dollar maintained its recent strength, preparing for its best month since April 2022, with traders expecting major US economic data this week. A stronger dollar, coupled with rising Treasury yields, is adding to pressure on gold prices, making bullion more expensive for foreign buyers. Yields on the 10-year US Treasury bond rose to a three-month high of 4.26%, reflecting investors’ anticipation of a possible response by the Federal Reserve to the upcoming data.
Anticipation of US interest rate cut supports gold amid mixed demand
While the Fed remains in a blackout ahead of next week’s meeting, markets are pricing in a high probability (around 95%) of a 25 basis point rate cut by November, which could provide support to non-yielding gold if achieved.
Traders are keeping a close eye on this week’s data, especially the ADP employment report on Wednesday, core inflation data for personal consumption expenses on Thursday, and the October payroll report on Friday. The jobs report for October is expected to show a slowdown, with 125,000 jobs expected to be added versus 254,000 in September.
This slowdown may support the labor-market narrative of a slowdown, providing further justification for the Fed’s shift to dove policy. In addition, the PCE report, the Fed’s preferred inflation measure, is expected to show a slight rise in core inflation of 0.3% for September. A low reading could signal progress towards the Fed’s 2% inflation target, reinforcing gold’s attractiveness as an alternative investment in an environment of low interest rate expectations.
Asian physical demand falls as US demand rises
Gold demand patterns are changing as high prices deter Asian consumers, with Chinese gold consumption down 11.2% year-on-year in the first three quarters of 2024, according to the China Gold Association. By contrast, Western demand appears resilient as inflation fears and geopolitical risks drive safe-haven purchases.
UBS analyst Giovanni Staunovo noted that while physical demand is dwindling in the East, Western investment demand continues to support gold, especially with the prospect of lower US interest rates in 2024.
U.S. Data and Tensions Push Gold Toward a Volatile Path
Gold trend in the near term is likely to be affected by this week’s US economic data and any updates from the Middle East. The Fed’s dovish stance after signs of slowing inflation or employment could support the recovery towards recent highs.
with analysts such as UPS’s Staunovo expecting gold to reach $2,900 over the next 12 months.
Conversely, strong economic data pointing to persistent inflation or strong job growth may calm these expectations, putting pressure on gold as yields persist and the dollar strengthens. Traders should remain vigilant as each release can change expectations data and provide trading opportunities amidst a background that remains uncertain.
Prospects of a rate cut by the Federal Reserve (Federal) and concerns about deficit spending after the US election continue to support higher US Treasury yields.
The price of gold (XAU/USD) is struggling to take advantage of its intraday rebound and remains below the supply zone of 2748-2750 USD during the first part of the European session on Monday. Safe-haven demand stemming from tensions in the Middle East and concern about the U.S. election continues to operate as a tailwind for the precious metal. Apart from this, the modest decline of the US dollar (USD) From its highest level since July 30.
it turns out to be another factor providing some support to the commodity..
However, the prospects of a Fed’s rate cut and concerns about deficit spending after the US election remain supportive of higher US Treasury yields. This, combined with the generally positive risk tone, keeps the price of gold non-yielding. Traders also seem to be hesitant ahead of this week’s major U.S. macroeconomic data – third quarter GDP reading, personal consumption expenditure price index (PCE), and Nonfarm Payrolls (NFP) report.
