Gold Price Struggles to Attract Buyers Amid Fading Hopes for Larger Fed Rate Cut
Gold price (XAU/USD) has been facing a tough time luring buyers in the current market environment, as hopes for an aggressive interest rate cut by the Federal Reserve (Fed) begin to fade. While some factors continue to support the yellow metal, including ongoing geopolitical tensions and a slight weakness in the US Dollar (USD), gold remains confined within a tight trading range. Investors are cautiously waiting for upcoming economic data and policy announcements, making the short-term outlook for gold uncertain.
Mixed Fundamental Backdrop Limits Gold’s Upside
Diminishing Expectations for a Larger Fed Rate Cut
Gold, being a non-yielding asset, typically benefits from a low-interest-rate environment. However, the odds of the Fed pursuing a more aggressive policy easing have been declining. Last Friday’s upbeat US jobs report provided further evidence that the labor market remains resilient. As a result, traders have scaled back their expectations for a larger rate cut in November, which has weighed on gold’s performance.
According to the CME’s FedWatch tool, the likelihood of a 25 basis points rate cut at the upcoming Federal Open Market Committee (FOMC) meeting stands at around 85%. This diminishing hope for a more significant cut has capped the upside for gold prices, as rising interest rates tend to strengthen the USD and make gold less attractive as an investment.
Strong US Dollar Poses a Headwind for Gold
The US Dollar has remained steady, holding near a seven-week high, driven by a resilient economy and expectations that the Fed may not pursue aggressive monetary easing. A stronger USD typically weighs on gold, as it makes the commodity more expensive for buyers using other currencies. With the USD holding firm, gold’s gains have been limited, leaving the metal stuck in a familiar range.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Geopolitical Risks and USD Downtick Limit Gold’s Losses
Middle East Tensions Provide Support for Safe-Haven Gold
Despite the challenges posed by a stronger USD and the fading hope for larger rate cuts, gold continues to find support from its status as a safe-haven asset. Ongoing geopolitical risks, particularly stemming from the Middle East, have helped limit the downside for gold prices. Recent escalations, including rocket fire from Hezbollah and retaliatory bombings by Israel, have raised concerns about a broader conflict in the region. These risks have bolstered demand for gold, as investors seek safe-haven assets amid uncertainty.
Modest USD Downtick Offers Temporary Relief
While the USD remains strong overall, it has seen a modest downtick in recent sessions, offering temporary relief to gold prices. This slight weakening of the dollar has helped prevent deeper losses for gold, though it has not been enough to trigger a meaningful rally. The combination of geopolitical risks and a weaker USD has kept gold range-bound, with traders waiting for more clarity from upcoming economic data.
Key Economic Events on the Horizon
FOMC Meeting Minutes to Offer Clarity on Fed Policy
One of the most anticipated events this week is the release of the FOMC meeting minutes on Wednesday. These minutes are expected to provide valuable insights into the Fed’s thinking on interest rates and monetary policy. Traders will be closely watching for any indications of future rate cuts or shifts in the Fed’s policy stance, which could have a significant impact on gold prices. A more dovish tone could reignite hopes for a larger rate cut, providing a boost to gold.
US Inflation Data to Influence Gold Price
In addition to the FOMC meeting minutes, the US Consumer Price Index (CPI) and Producer Price Index (PPI) are set to be released on Thursday and Friday, respectively. These inflation metrics will be crucial in shaping market expectations for future Fed actions. Stronger-than-expected inflation could reduce the likelihood of aggressive rate cuts, putting further pressure on gold. On the other hand, weaker inflation data could revive hopes for monetary easing, potentially lifting gold prices.
Daily Digest Market Movers: Gold Bulls Remain Cautious
Positive US Jobs Report Undermines Gold
The positive US jobs report released last Friday has been a major factor in reducing market expectations for a more aggressive policy easing by the Fed. This data has undermined gold’s appeal, as it suggests that the US economy remains strong enough to withstand higher interest rates. With fewer bets on an oversized rate cut, gold bulls have remained on the sidelines, hesitant to push the metal higher.
US Bond Yields Surge Above 4%
Another headwind for gold has been the rise in US bond yields. The yield on the benchmark 10-year US government bond moved past the 4% threshold for the first time in two months. Higher bond yields make non-yielding assets like gold less attractive, as investors seek better returns in fixed-income securities. This has further limited gold’s upside potential.
Fed Officials Weigh In on Economic Outlook
Comments from Federal Reserve officials have added to the uncertainty surrounding future rate cuts. Minneapolis Fed President Neel Kashkari recently noted that the risks have shifted from higher inflation to higher unemployment, suggesting that the Fed may take a more cautious approach to future rate cuts. Similarly, St. Louis Fed President Alberto Musalem indicated that the economic outlook would dictate the path of monetary policy, leaving room for further rate cuts but not necessarily aggressive ones.
Geopolitical Risks Continue to Support Safe-Haven Demand
Escalating Tensions in the Middle East
The conflict in the Middle East, particularly between Israel and Hezbollah, remains a key factor supporting demand for safe-haven assets like gold. Recent rocket attacks and retaliatory bombings have raised fears that the conflict could escalate into a broader regional war. This has led investors to seek refuge in gold, helping to limit the metal’s losses despite the stronger USD and higher bond yields.
Concerns Over China’s Economic Outlook
In addition to geopolitical risks, concerns about China’s economic outlook have added to the uncertainty in global markets. China’s state planner, the National Development and Reform Commission (NDRC), recently acknowledged increasing downward pressure on the Chinese economy. This has further fueled demand for safe-haven assets like gold, as traders remain wary of broader economic instability.
Technical Outlook: Gold Price Range-Bound, Awaiting Breakout
Key Support and Resistance Levels
From a technical perspective, gold prices remain confined within a short-term trading range, with key support levels around the $2,632-$2,630 area. A break below this range could prompt technical selling and push gold prices toward the $2,600 mark, with further downside potential toward the $2,560 and $2,535 levels. On the upside, immediate resistance lies near the $2,670-$2,672 area, with stronger resistance around the $2,685-$2,686 zone, which corresponds to the all-time high touched in September.
Oscillators Signal Potential for Bullish Move
Despite the current range-bound trading, oscillators on the daily chart remain in positive territory, suggesting that bullish traders could regain control if key resistance levels are breached. A convincing move above the $2,700 mark would signal a fresh rally for gold, potentially extending its multi-month uptrend.
Gold Price Awaits Fresh Impetus
In summary, gold prices continue to struggle amid a mixed fundamental backdrop. While diminishing hopes for a larger Fed rate cut and a strong US Dollar have limited the metal’s upside, ongoing geopolitical risks and a modest USD downtick have helped prevent deeper losses. Traders are likely to remain cautious ahead of key events like the FOMC meeting minutes and US inflation data, both of which could provide the fresh impetus needed for gold to break out of its current range.
For now, gold remains range-bound, with traders awaiting clearer signals before placing directional bets.
