Gold Price Remains Pressured Amid Fed Rate Cut Bets and Stronger USD
Gold prices (XAU/USD) remain under pressure for the second consecutive day as a stronger US Dollar (USD) and diminishing expectations of aggressive Federal Reserve rate cuts weigh on the precious metal. While geopolitical risks provide some support, the yellow metal struggles to maintain momentum, with sellers dominating the market. This article examines the key factors influencing gold prices, including the Federal Reserve’s monetary policy, China’s economic slowdown, and ongoing geopolitical risks.
Smaller Fed Rate Cut Bets Weigh on Gold
Fed Policy Expectations Support USD Rally
The recent strength of the US Dollar is a primary factor behind the downward pressure on gold prices. Expectations for a less aggressive policy easing by the Federal Reserve have bolstered the USD, driving it to its highest level since August 8. Market participants now anticipate a regular 25 basis points (bps) rate cut in November, rather than the larger cuts that had been priced in earlier.
The firming expectations for a modest rate cut reflect a belief that the Federal Reserve will proceed cautiously due to the resilient US job market and steady economic growth. Minneapolis Fed President Neel Kashkari recently commented that monetary policy remains restrictive and suggested that further modest rate cuts could be appropriate. Similarly, Fed Governor Christopher Waller highlighted that the economy is on solid footing, signaling that a rapid pace of rate cuts may not be necessary.
For gold, a stronger USD typically results in reduced demand, as it becomes more expensive for foreign investors to purchase the precious metal. This inverse relationship is playing out in the current market, with the bullish USD acting as a significant headwind for gold prices.
Risk-On Sentiment Undermines Safe-Haven Demand
In addition to the USD rally, the current risk-on sentiment in the market is also undermining demand for gold, which is traditionally viewed as a safe-haven asset during times of economic uncertainty. Investors are more inclined to seek riskier assets like equities, further reducing flows into gold.
China’s Economic Slowdown Adds Pressure
Disappointment Over China’s Fiscal Stimulus
Another factor contributing to gold’s recent struggles is the disappointing fiscal stimulus from China, the world’s largest consumer of gold. Investors had hoped for more aggressive measures from the Chinese government to support the country’s slowing economy, but the lack of substantial details has weighed on market sentiment.
China’s recent weak inflation figures have further added to concerns about the country’s economic health. Released over the weekend, the data revealed sluggish growth in consumer prices, reflecting ongoing challenges in the world’s second-largest economy. As China is a major driver of global demand for gold, any signs of economic softness can negatively impact the price of the metal.
Impact on Gold Demand
The slowdown in China’s economy has dampened investor confidence in the gold market. With weaker consumer demand for gold in China, coupled with disappointing government stimulus measures, sellers have been active in the market, driving prices lower. This negative sentiment surrounding China’s economic outlook has been another headwind for gold’s recent performance.
Geopolitical Risks Offer Some Support
Middle East Tensions Keep Gold’s Downside Limited
Despite the bearish pressure from the strong USD and China’s economic slowdown, geopolitical risks have provided some support to gold prices, preventing a deeper sell-off. The ongoing conflict in the Middle East, particularly tensions between Israel and Hezbollah, has raised concerns about broader regional instability.
Over the weekend, Israel responded forcefully to a Hezbollah drone attack on its army base, which resulted in the deaths of four soldiers and severe injuries to seven others. The risk of further escalation in the region, along with concerns that Israel may target Iranian assets, has kept safe-haven demand for gold from collapsing entirely.
In times of heightened geopolitical risks, gold often benefits as investors seek refuge in safe-haven assets. While these tensions have not been enough to reverse the broader downward trend in gold prices, they have helped limit the downside and may continue to provide some support in the near term.
Market Focus on Middle East Developments
As the situation in the Middle East unfolds, traders will likely keep a close eye on any developments that could impact gold prices. A broader regional conflict or increased tensions between Israel and Iran could lead to a stronger bid for safe-haven assets like gold, potentially reversing some of the recent losses.
Technical Outlook: Key Levels for Gold Price
Resistance Levels to Watch
From a technical perspective, gold faces several key resistance levels that traders should watch closely. The overnight swing high around the $2,666-$2,667 region now serves as an immediate hurdle for the yellow metal. A sustained break above this level could lift gold back towards its all-time high of $2,685-$2,686, which was reached in September.
Should gold manage to clear this hurdle, the next major resistance is the psychological $2,700 mark. A decisive break above this level could pave the way for an extension of the multi-month uptrend, with further upside potential.
Support Levels to Monitor
On the downside, immediate support for gold is seen near the $2,632-$2,630 zone. A failure to hold this support level could trigger further selling pressure, with the next key level being the $2,600 round figure. If gold falls below $2,600, it may attract more aggressive bearish bets, making the precious metal vulnerable to a deeper slide.
The next relevant support level below $2,600 is near the $2,560 zone, followed by the $2,535-$2,530 region. Ultimately, the $2,500 psychological mark could act as a crucial support level, as a break below this level could signal a more prolonged downturn for gold prices.
Short-Term Market Outlook
Focus on Upcoming Data and Events
In the short term, traders will be looking at key economic data and Fed commentary to assess the outlook for gold. The release of the Empire State Manufacturing Index, along with speeches from Federal Reserve officials, could provide fresh insights into the central bank’s thinking on interest rate policy.
Additionally, any developments in the Middle East or further signs of economic weakness in China could have a significant impact on gold prices. While the broader outlook remains bearish due to the strong USD and risk-on sentiment, geopolitical risks and economic data could lead to short-term volatility.
Gold prices continue to face pressure from multiple fronts, including a stronger US Dollar and fading expectations of aggressive Federal Reserve rate cuts. The disappointment over China’s fiscal stimulus and economic slowdown has also contributed to the recent decline in gold prices. However, geopolitical risks stemming from the ongoing conflict in the Middle East provide some support, limiting deeper losses.
From a technical perspective, key resistance levels near $2,667 and $2,700 remain significant hurdles for gold, while support near $2,630 and $2,600 could help cushion further downside. Traders will closely monitor upcoming economic data and geopolitical developments to gauge the short-term direction of gold prices.
