Gold price falls amid bullish market sentiment, bullish potential appears intact

• The price of gold attracts some sellers for the second day in a row, although the downside appears limited.
• Optimism over China’s stimulus measures is driving some refuge flows from XAU/USD.
• Geopolitical risks and bets for more aggressive policy easing by the Fed could limit losses for the precious metal.

The price of gold (XAU/USD) is starting the new week on a softer note, although it remains limited in a multi-day range and a striking distance from the all-time high reached last Thursday. Israel has escalated the war on its border with Lebanon, raising the risk of a further escalation of geopolitical tensions in the Middle East. Apart from that, news that Japan’s new Prime Minister Shigeru Ishiba is planning a general election for October 27, along with political uncertainty in the US, should support the safe-haven precious metal.

Moreover, the dovish expectations of the Federal Reserve (Fed) are keeping US dollar (USD) bulls on the defensive, near the July 2023 low reached on Friday, and could prove to be another factor acting as a headwind from behind for the gold that has no yield. price. That said, the risk environment, supported by additional stimulus announced by China over the weekend, is seen to be putting some pressure on XAU/USD for the second day in a row. However, the fundamental backdrop supports the outlook for some subdued buying.

Daily Digest Market Movers: Gold price undermined by risk sentiment, Fed rate cut bets and geopolitics could limit deeper losses

• Israel widened its confrontation with Iran’s allies – the Houthis in Yemen and Hezbollah in Lebanon – and launched aggressive airstrikes on Sunday, fueling fears of an all-out war in the Middle East.
• According to a statement by the Israel Defense Forces, dozens of aircraft, including fighter jets, power plants and a seaport in Yemen’s Ras Issa and Hodeidah ports were targeted in the airstrikes.
• Israeli airstrikes in Lebanon have killed the deputy head of the Hezbollah militant group’s Central Council, Nabil Kaouk, making him the seventh leader killed in Israeli strikes in just over a week.
• Investors now appear concerned that the fighting could get out of hand and draw in Iran and the United States, Israel’s main ally, which in turn should act as a tailwind for gold prices.
• Current market prices point to a higher chance that the US Federal Reserve will cut borrowing costs again by 50 basis points for the second consecutive monetary policy meeting in November.
• Dovish Fed expectations fail to help the US dollar make any meaningful recovery from the July 2023 low and should help limit losses for the non-yielding yellow metal.
• The president of the Fed in St. Louis, Alberto Musalem, said on Friday that the US central bank should return to cutting interest rates gradually, after a half-point larger-than-usual cut at its September meeting.
• Global risk sentiment is getting a further boost after the People’s Bank of China announced on Sunday that it will tell banks to cut mortgage rates on existing home loans by October 31.
• This comes on top of last week’s slew of monetary, fiscal and liquidity support measures – China’s biggest stimulus package since the pandemic – and continues to support the upbeat mood.
• China’s official manufacturing PMI improved to 49.8 in September from 49.1, beating estimates of 49.5, while the NBS non-manufacturing PMI unexpectedly fell to 50.0 from the figure of 50.3 in August.
• China’s Caixin Manufacturing PMI fell to 49.3 in September from 50.4 the previous month, and the Caixin Services PMI fell to 50.3 in the reported month from 51.6 in August.
• Meanwhile, the upbeat mood is putting some downward pressure on the safe-haven precious metal as traders now look to Fed Chairman Jerome Powell’s speech for a significant boost.

Technical Outlook: Gold Price Could Attract Bearish Buyers Near Uptrend Channel Retracement

From a technical perspective, any further decline is likely to find decent support near a short-term uptrend channel resistance break around the $2,625 region. This is followed by the $2,600 level, which, if decisively breached, could pave the way for significant near-term downside. Given that the relative strength index (RSI) on the daily chart is still near the overbought zone, the price of gold could then accelerate the slide towards the intermediate support of $2,560 en route to the $2,535-2,530 region.

On the other hand, the $2,670-2,671 area now seems to act as an immediate obstacle ahead of the $2,685-2,686 area or the record high reached last Thursday. This is closely followed by the $2,700 round figure, which, if conquered, will be seen as a new trigger for bullish traders and set the stage for an extension of a multi-month uptrend.