Gold price (XAU/USD) is trading around $2,620 on Tuesday, touching the bottom of its recent $50 trading range. Investor disappointment stemming from China’s limited fiscal stimulus has become a major factor influencing gold prices. Since China is the largest consumer of gold, any news regarding its economic measures significantly impacts the gold market.
The Impact of China’s Stimulus on Gold Prices
The recent fiscal stimulus announcement from China fell short of expectations. This news has created a headwind for gold, affecting its demand and price stability. Furthermore, the chances of the Federal Reserve cutting interest rates by 50 basis points at the upcoming November meeting are decreasing. This increase in the likelihood of a 25 basis point cut—or no cut at all—means holding gold, which does not earn interest, becomes less appealing.
ETF Demand and Safe-Haven Appeal
Despite these challenges, gold is seeing support from strong demand for gold-backed Exchange Traded Funds (ETFs). These investment vehicles allow individuals to buy shares in gold instead of purchasing physical bullion. According to the latest report from the World Gold Council (WGC), September saw net ETF inflows increase again.
The report highlighted that gold-backed ETFs added 18 tonnes in September, raising total holdings to 3,200 tonnes. The cumulative inflow reached $1.4 billion, marking the fifth consecutive month of positive inflows. In August and July, ETFs attracted $2.1 billion and $3.7 billion, respectively, indicating growing interest in gold investments.
Geopolitical Factors Affecting Gold Prices
Gold price continues to be an attractive safe-haven asset amidst rising geopolitical tensions. Recent military actions, such as Israel’s intensified attacks in Lebanon, further complicate the landscape. This conflict has sparked fears of broader regional instability, leading investors to seek safe-haven assets like gold.
Naim Qassem, a deputy leader of Hezbollah, stated that the ongoing conflict revolves around the resilience of both parties. He asserted that Hezbollah’s capabilities remain intact despite recent setbacks. Markets are also anxiously awaiting potential Israeli retaliation against Iran for its prior missile attacks, heightening uncertainty.
Technical Analysis of Gold’s Price Movement
Currently, gold is testing the lower end of its narrow trading range, which is between $2,632 (the low from October 4) and $2,673 (the high from October 1). The short-term trend appears sideways, adhering to the principle that “the trend is your friend.”
Should gold prices dip below $2,632, a move down to at least $2,625 is likely. If it drops further, it may test support around $2,600. Conversely, a breakout above $2,673 could signal a resumption of the previous upward trend, with potential gains up to $2,700.
In conclusion, gold remains in an overall upward trend despite the current market consolidation. A decisive movement above or below the current range will likely confirm the next directional bias in the gold market.
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