Gold price (XAU/USD) edges higher for the second straight day on Wednesday – also marking the fourth day of a positive move in the previous five – and touches a one-and-half-week high, around the $2,670 region during the Asian session. Retreating US Treasury bond yields drags the US Dollar (USD) away from over a two-month peak touched earlier this week and turns out to be a key factor underpinning the commodity. Furthermore, a turnaround in the global risk sentiment – as depicted by a weaker tone across the global equity markets – drives some haven flows towards the precious metal amid persistent geopolitical risks.
Adding to this, elevated demand from central banks offers additional support to the Gold price. That said, firming expectations for a less aggressive policy easing by the Federal Reserve (Fed) and bets for a regular 25 basis points (bps) rate cut in November should limit any meaningful USD corrective decline. This, in turn, might hold back bulls from placing fresh bets around the non-yielding yellow metal. Moreover, reports that Israel will refrain from targeting Iran's oil and nuclear sites might contribute to capping gains for the XAU/USD, warranting some caution before positioning for any further near-term appreciating move.
From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,685-2,686 region, or the
all-time peak touched in September. This is closely followed by the $2,700 round-figure mark, which if cleared decisively will set the stage for an extension of a well-established multi-month-old uptrend amid positive oscillators on the daily chart.
On the flip side, immediate support is pegged near the $2,650 area, below which the Gold price could slide to the $2,632-2,630 region. Any further decline is likely to attract some buyers and remain limited near the $2,600 round-figure mark. The latter should act as a key pivotal point, which if broken decisively might prompt some technical selling and pave the way for deeper losses.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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