Gold Price Trends Down Amid Positive Risk Sentiment; Geopolitical Risks and Fed Rate Cut Bets Limit Downside

Gold price (XAU/USD) continues to face selling pressure for the second consecutive day, although its downside appears limited by ongoing geopolitical risks and expectations of a dovish Federal Reserve (Fed). Despite trading with a negative bias, the precious metal remains within close range of its all-time peak, which was reached just last week. A modest uptick in the US Dollar (USD), along with a prevailing risk-on sentiment driven by China’s stimulus measures, is currently exerting downward pressure on gold.

However, several factors are keeping losses for the safe-haven commodity in check, including bets on further Fed rate cuts and ongoing geopolitical risks in the Middle East. Traders are now looking to Fed Chair Jerome Powell’s speech for further clues on market direction.

Gold Faces Selling Pressure but Downside is Limited

For the second day in a row, gold prices are seeing some selling pressure, but follow-through selling is lacking. The optimism surrounding China’s stimulus package, aimed at boosting its slowing economy, has dampened demand for gold as a safe-haven asset. Despite this, the XAU/USD remains within striking distance of its record high, showcasing strong underlying support amid volatile global conditions.

China’s Stimulus Measures Drive Risk-On Sentiment

China’s central bank, the People’s Bank of China (PBoC), announced fresh stimulus measures, including a reduction in mortgage rates for existing home loans, effective by October 31. This follows last week’s comprehensive fiscal, monetary, and liquidity support measures, which collectively represent China’s most significant stimulus package since the pandemic. As a result, global market sentiment has turned optimistic, with risk-on assets gaining traction and safe-haven flows into gold reducing.

Modest US Dollar Recovery Adds to Gold’s Pressure

A modest recovery in the US Dollar is also contributing to the downward pressure on gold. However, this upside in the USD is tempered by expectations of further rate cuts by the Federal Reserve, limiting any significant downside movement for the non-yielding yellow metal. Currently, market pricing indicates a strong likelihood of the Fed cutting borrowing costs by 50 basis points during its next meeting in November, following a half-point reduction in September.

Geopolitical Tensions Provide Support for Gold

While the global risk tone has improved, geopolitical tensions continue to provide a safety net for gold prices. Ongoing conflicts in the Middle East, particularly between Israel and Iran-backed militant groups, are keeping traders cautious and preventing any substantial downside movement for gold.

Escalating Conflict in the Middle East

Israel has expanded its military operations, launching airstrikes against targets in Lebanon and Yemen, which has heightened fears of a broader regional conflict. Israel’s confrontations with Hezbollah and the Houthis have escalated, with the Israeli military killing several key leaders, including Nabil Kaouk, the deputy head of Hezbollah’s Central Council. The possibility of further escalation and the risk of drawing in other global powers like Iran and the United States adds to the uncertainty, fueling demand for gold as a safe-haven asset.

Fed’s Dovish Stance Keeps a Lid on Dollar Gains

The Federal Reserve’s dovish tone is another key factor limiting any meaningful recovery in the US Dollar, which in turn supports gold prices. St. Louis Fed President Alberto Musalem’s recent remarks suggest that the central bank may continue with gradual rate cuts after its aggressive policy easing in September. This expectation of further monetary policy loosening is preventing the USD from gaining significant strength, which in turn reduces the pressure on gold prices.

XAU/USD Daily Price Chart

Source: TradingView, prepared by Richard Miles

Market Movers: Daily Digest

• Geopolitical Risks: Israel’s military actions in the Middle East, particularly its airstrikes on Hezbollah and Houthi targets, continue to stir fears of a wider conflict. Investors are concerned that tensions may spiral out of control, drawing in the United States and other global players.
• Fed Rate Cuts: Market sentiment is increasingly betting on another 50 basis point rate cut by the Federal Reserve at its November meeting. This dovish expectation is preventing the USD from making a meaningful recovery, keeping the pressure off gold prices.
• China’s Stimulus: The People’s Bank of China has rolled out a series of fiscal and monetary measures, including mortgage rate reductions and liquidity support, which are boosting market sentiment. These efforts are keeping risk-on assets in favor and reducing demand for gold as a safe haven.
• Economic Data from China: China’s Manufacturing PMI improved to 49.8 in September, beating expectations, though the NBS Non-Manufacturing PMI and Caixin Services PMI both missed estimates. This mixed data suggests a slow recovery for China’s economy, with ongoing stimulus efforts likely to continue.

Technical Outlook: Gold’s Bullish Potential Remains Intact

From a technical standpoint, gold prices remain in a long-term uptrend, with an ascending trend channel breakout still in play. Despite recent selling pressure, the downside seems limited, and several key support levels are likely to prevent any significant decline.

Key Support Levels to Watch

The first major support level is seen around the $2,625 region, a former resistance point now acting as a crucial line of defense for the bulls. If this level is breached, the next significant support zone lies around $2,600, followed by an intermediate level near $2,560. A decisive break below these levels could accelerate the slide toward $2,535-$2,530.

Immediate Resistance Levels

On the flip side, the gold price is facing immediate resistance at the $2,670-$2,671 range, followed by the recent all-time high at $2,685-$2,686, which was touched last Thursday. A breakout above this zone could open the door for further gains, with the next psychological barrier at the $2,700 mark. A sustained move above this level would likely trigger a fresh wave of buying, pushing gold into a new multi-month rally.

Gold Awaits Key Catalysts

While gold faces some selling pressure due to the risk-on sentiment and a modest USD recovery, its downside remains limited by geopolitical tensions and expectations of further Fed rate cuts. As traders look ahead to Fed Chair Jerome Powell’s speech, the precious metal will likely remain range-bound, with key support and resistance levels providing a framework for near-term price action.

Geopolitical risks and dovish Fed expectations are expected to act as tailwinds for gold, while China’s stimulus measures and the broader risk-on environment could limit any significant upside. Gold bulls remain on the sidelines for now, but the precious metal’s bullish potential remains intact with plenty of potential catalysts on the horizon.