XAU/USD at record highs, China optimism, dovish Fed offset overbought conditions

Vaseline3 weeks ago

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XAU/USD at record highs, China optimism, dovish Fed offset overbought conditions

The price of gold fell to $2,635 early on Tuesday, focusing on Fedspeak, data from the US.
The US dollar rebounds with Treasury yields, even as risk flows back on China optimism.
Gold buyers refuse to give up despite RSI overbought conditions on the daily chart.

The price of gold is inching slightly away from a new record high of $2,635 early Tuesday, replicating the price action seen in Asian trading on Monday. Traders are looking forward to a series of speeches from US Federal Reserve (Fed) policymakers and US consumer confidence data before placing more bullish bets on gold prices.

Gold price buoyed by Fed, geopolitics and China’s stimulus hopes

Despite a modest recovery staged by the US dollar and overbought conditions on the daily chart, gold prices are holding their position near all-time highs as buyers refuse to give up on the latest dovish Fed comments, heightened China hopes. the coming stimulus and the escalation of geopolitical tensions in the Middle East.

At the highly anticipated press conference, People’s Bank of China (PBOC) Governor Pan Gongsheng announced a series of measures to boost the economic recovery, including plans to cut the required reserve ratio (RRR) by 50 basis points (bps ). Heightened expectations that these stimulus measures would boost the economy are keeping the gold price restrained. China is the largest consumer of the yellow metal in the world.

In addition, Bloomberg reported that Israel stepped up its airstrikes in southern Lebanon, killing about 500 people and injuring 1,000. It was the deadliest attack since the Israel-Hezbollah war in 2006. This follows the weekend rocket exchange , between both Israel and Hezbollah, as the conflict in the Middle East looks set to translate into a wider regional conflict. The price of gold tends to benefit from geopolitical tensions due to its traditional safe haven status.

Meanwhile, gold buyers also remain hopeful as markets are betting on another 50bps rate hike in November thanks to the Fed’s dovish talks. Fed policymakers continued to argue the need for more rate cuts amid downside risks to the labor market as inflation continues to inch closer to the bank’s 2.0% target. Among Fed officials who spoke on Monday, Chicago Fed President Austan Goolsbee was the most dovish, noting that “more rate cuts are likely needed over the next year, rates need to come down significantly.”

The focus now remains on Fed Governor Michelle Bowman’s speech and consumer confidence data from the US Conference Board (CB) for fresh trading stimulus in gold prices as the escalation in the Middle East will also be in focus.

Gold prices hit a new all-time high on Monday after a brief pullback, supported by a renewed decline in the US dollar, as markets turned risk-averse on discouraging global business PMI reports. The preliminary S&P Global US manufacturing PMI continued to decline to 47.0 in September, compared to an expected 48.5 and August’s 47.9. The services PMI also fell to 55.4 in September from 55.7 in August.

Gold Price Technical Analysis: Daily Chart

As seen on the daily chart, overbought conditions as represented by the 14-day Relative Strength Index (RSI) above 70 continue to warrant caution for gold buyers.

If buyers fight back, acceptance above the $2,635 record level is essential to further unleash the upside towards the $2,650 psychological barrier. The next relevant resistance is seen at the $2,700 level.

If the corrective downside works, the gold price will likely test the previous day’s low of $2,613, below which the $2,600 threshold will come into play.

Further south, gold sellers could target the September 20 low of $2,585.

Gold FAQ

Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Today, apart from its luster and use for jewellery, the precious metal is widely seen as a safe haven, meaning it is considered a good investment during troubled times. Gold is also widely seen as a hedge against inflation and against depreciating currencies because it is not based on any particular issuer or government.

Central banks are the biggest holders of gold. In order to support their currencies in troubled times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and currency. Large gold reserves can be a reliable source of a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US dollar and US Treasuries, which are both major reserve and safe-haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets in troubled times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly cause the price of gold to rise due to its safe haven status. As a lower-yielding asset, gold tends to rise with lower interest rates, while the higher cost of money usually affects the yellow metal. However, most of the moves depend on how the US dollar (USD) behaves, as the asset is valued in dollars (XAU/USD). A strong dollar tends to keep gold prices in check, while a weaker dollar is likely to push gold prices higher.

Vaseline3 weeks ago

0 4 minutes read