Gold Price Reverses Part of Wednesdays Slide Amid Softer USD and Geopolitical Tensions
Gold price (XAU/USD) has regained some positive momentum, reversing part of its retracement from the previous day’s all-time high. The precious metal climbed to the $2,736-$2,737 range during the European session, recovering from Wednesday’s corrective slide. Geopolitical risks, coupled with US political uncertainty ahead of the November 5 Presidential election, have contributed to the renewed safe-haven demand for gold. Additionally, a modest pullback in the US Dollar (USD) and retreating US Treasury bond yields have further bolstered the yellow metal’s price.
Key Factors Supporting Gold’s Rally
1. Geopolitical Risks and Safe-Haven Appeal
Gold has historically been viewed as a safe-haven asset during times of geopolitical tension. Ongoing conflicts in the Middle East, particularly the escalating violence between Israel and Hezbollah, have increased demand for gold. The recent Israeli air strikes on southern Lebanon and Beirut suburbs, in response to rocket fire from Hezbollah, have heightened concerns over further military escalation in the region. Additionally, Israel’s impending retaliation against Iran for its ballistic missile attack on October 1 has further fueled demand for safe-haven assets like gold.
2. US Political Uncertainty Ahead of the Election
The upcoming US Presidential election on November 5 is creating uncertainty in the markets. The potential for economic instability depending on the election outcome has prompted investors to seek refuge in gold. Market participants are closely watching the chances of former President Donald Trump winning the election, which has sparked speculation about the possibility of inflation-inducing tariffs. Furthermore, concerns over deficit spending from both Vice President Kamala Harris and Trump’s plans have led investors to flock to gold as a hedge against economic volatility.
3. USD Pullback and Retreating US Treasury Yields
The USD has seen a slight pullback from its nearly three-month highs, providing additional support to gold prices. After reaching a multi-month peak, US Treasury bond yields have also retreated, triggering profit-taking in the USD. This, in turn, has benefited the non-yielding gold, as lower bond yields reduce the opportunity cost of holding the precious metal.
Headwinds for Gold’s Upside
1. Fed Rate Cut Expectations and USD Dip-Buying
While gold has gained support from the softer USD and lower bond yields, the Federal Reserve’s monetary policy stance is likely to limit further gains. The Fed is expected to implement smaller interest rate cuts over the next year. The CME Group’s FedWatch Tool indicates that traders are pricing in over a 90% probability that the Fed will lower borrowing costs by 25 basis points in November. This cautious approach by the Fed may cap any significant decline in US bond yields, which could prompt USD dip-buying and limit gold’s upside potential.
2. Robust US Economic Data
Recent robust US macroeconomic data have suggested that the US economy remains on strong footing, reducing the likelihood of aggressive rate cuts by the Fed. This has dampened hopes for more dovish monetary policy, which could have otherwise fueled a stronger rally in gold prices. As the Fed proceeds with modest rate cuts, the US economy’s resilience could act as a headwind for gold, especially if the USD regains strength.
Technical Outlook: Gold Price at a Crossroads
From a technical perspective, the recent breakdown below a short-term ascending trend-channel support may signal a shift in gold’s trajectory. The break below the $2,730-$2,732 area, which had previously served as an immediate support level, has now turned into a resistance zone. Traders should exercise caution, as the negative oscillators on the hourly charts suggest that the path of least resistance for gold is likely to be to the downside in the short term.
Key Support Levels
The $2,700 mark is now a critical support level for gold. A convincing break below this psychological level could open the door for further downside momentum. The next target for bearish traders would be the $2,685 level, which serves as an intermediate support zone. If the corrective decline accelerates, the $2,672-$2,670 range, a strong horizontal resistance turned support, would be the next significant level to watch.
Key Resistance Levels
On the flip side, if gold manages to regain its upward momentum, the first resistance level lies in the $2,730-$2,732 area, which coincides with the ascending trend-channel support breakdown point. A break above this level would indicate that the uptrend is intact, and gold could then target the $2,750 region. Should the bullish momentum persist, the next significant resistance would be found in the $2,770-$2,775 zone, followed by the $2,800 round figure. A sustained move above $2,800 would likely signal a continuation of gold’s long-term uptrend.
Outlook: Cautious Optimism for Gold Traders
Despite the current recovery in gold prices, traders should approach the market with caution. The broader fundamental backdrop, including the Fed’s rate cut expectations and strong US economic data, suggests that gold’s upside may be limited in the near term. The geopolitical risks and US political uncertainty, however, continue to offer some support for the safe-haven asset.
Investors will now turn their attention to the release of the flash Purchasing Managers’ Index (PMI) data from the US, which could provide further insights into the health of the global economy. A stronger-than-expected PMI reading could boost the USD, putting downward pressure on gold. Conversely, weaker data could prompt further profit-taking in the USD, supporting gold prices.
Mixed Signals for Gold
Gold’s current rally has been supported by softer USD and geopolitical risks, but the overall outlook remains mixed. While safe-haven demand continues to underpin the yellow metal, the Fed’s cautious approach to interest rate cuts and strong US economic data may cap significant gains. From a technical standpoint, gold’s price action suggests that the path of least resistance could be to the downside, at least in the short term. Traders should keep an eye on key support and resistance levels, as well as upcoming macroeconomic data, to gauge the next move in gold prices.
