Gold price (XAU/USD) is recovering into the $2,650s, bouncing back after a brief dip caused by easing tensions in the Middle East. This uptick follows news from a Wall Street Journal (WSJ) report, which stated that Israeli Prime Minister Benjamin Netanyahu assured U.S. President Joe Biden that any military action in Iran would focus only on military targets. This statement helped to ease market concerns temporarily, leading to a stronger US Dollar (USD) and impacting Gold prices.
Despite this, the continued reduction in expectations that the Federal Reserve (Fed) will cut interest rates has bolstered the USD, putting additional pressure on Gold prices. Meanwhile, U.S. inflation concerns remain high, as the latest Michigan Consumer Sentiment Survey revealed a sharp rise in long-term inflation expectations. Analysts at The Kobeissi Letter described the 7.1% inflation expectation in October as the highest in 40 years.
Factors Impacting Gold Prices
Rising US Dollar and Inflation Concerns
The stronger USD is a key factor influencing Gold price, with inflation expectations in the U.S. further weighing down the precious metal. The combination of high inflation and market anticipation that the Fed will keep rates steady contributes to the subdued performance of Gold in the short term.
Economic Slowdown in China
Adding to these pressures are concerns about China, the world’s largest consumer of Gold. The country’s slowing economy, coupled with unclear policies from Beijing on fiscal stimulus, has disappointed the markets. This economic uncertainty limits demand for Gold and contributes to the commodity’s fluctuating prices.
Central Bank Demand Supports Gold
Despite challenges, Gold continues to find support from robust global central bank demand. Over the past few years, central banks have increased their Gold reserves due to its safety and liquidity as a hedge against currency devaluation.
Even though central bank purchases have slowed in 2024, experts believe this sector will remain a major player in supporting Gold prices. According to statements made by officials from the central banks of Mongolia, the Czech Republic, and Mexico at a recent panel organized by the London Bullion Market Association (LBMA), Gold’s role as a reserve asset in global portfolios will likely expand.
Market Influencers and Calendar Events
While key data points are limited, speeches from three prominent Federal Reserve officials, including San Francisco Fed’s Mary Daly and Fed Governor Adriana Kugler, are likely to influence the Gold market. Investors will closely monitor their remarks to assess the Fed’s stance on interest rates, which could impact XAU/USD performance.
On the data front, the NY Empire State Manufacturing Index will also be worth watching. Although more focused on the USD, any shifts in this data could indirectly influence Gold.
Technical Analysis: Gold Testing Key Resistance
From a technical perspective, Gold’s current resistance sits around the $2,670 mark. After bouncing back from its recent lows, XAU/USD appears to have resumed its upward trend. A break above $2,673 would confirm this bullish momentum, potentially driving prices toward the next target of $2,685, with the psychological level of $2,700 in sight.
In contrast, a dip below $2,600 could signal a bearish reversal in the short and medium term, shifting market sentiment.
Conclusion
Gold’s recent movement reflects a delicate balance between global market forces, economic uncertainties, and central bank demand. While inflation and economic concerns in China add downward pressure, Gold’s ongoing demand from central banks offers strong support. As global financial markets remain volatile, the precious metal’s long-term uptrend remains intact, provided key resistance levels are breached.
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