XAU/USD establishes below $1,700, more weakness likely ahead of Fed Powell's speech

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Gold refreshes weekly top amid fears over Israel-Hamas war, US Q3 GDP in focus – Crypto News

Published

3 years ago

October 26, 2023

Dripp

Gold price attracts some buyers for the second straight day amid geopolitical concerns.
Bulls seem rather unaffected by rising US Treasury bond yields and a stronger US Dollar.
Investors look to the Advance US Q3 GDP growth figures for some meaningful impetus.

Gold price (XAU/USD) gains some positive traction for the second successive day on Thursday and climbs to a fresh weekly top heading into the European session. The precious metal currently trades just below its highest level since May 16 touched last Friday and remains well supported by the global flight to safety, led by fears of a potential escalation in the Israel-Hamas war. This, to a larger extent, offset a further rise in the US Treasury bond yields and sustained US Dollar (USD) buying, bolstered by hawkish Federal Reserve (Fed) expectations, which tends to undermine the non-yielding yellow metal.

Investors now look forward to important macro releases from the United States for cues on the Fed’s future rate-hike path, which will play a key role in determining the near-term trajectory for the Gold price. Thursday’s US economic docket highlights the Advance Q3 GDP print, Durable Goods Orders, the usual Weekly Initial Jobless Claims, followed by Pending Home Sales data. This, along with Fed Governor Christopher Waller’s scheduled speech and the US bond yields, should influence the USD price dynamics and produce short-term trading opportunities around the XAU/USD.

Daily Digest Market Movers: Gold price continues to attract haven flows amid Middle East tensions

Geopolitical concerns continue to support the Gold price, despite rising US Treasury bond yields and some follow-through US Dollar (USD) buying interest.
Israel’s military intensified its bombing on Hamas targets in Gaza and is prepared for a ground invasion, increasing the risk of a spillover to the wider Middle East region.
A slew of international powers have been making diplomatic efforts to de-escalate the raging conflict between Israel and Palestinian militant group Hamas.
Hawkish Federal Reserve expectations allow the benchmark 10-year US Treasury yield to hold steady near a 16-year top, around the 5% threshold breached earlier this week.
The XAU/USD bulls, meanwhile, seem rather unaffected by the recent strong US Dollar recovery move from a one-month low touched on Tuesday.
The preliminary estimate of the US GDP print is expected to show that the economy expanded by 4.2% annualized pace during the third quarter as compared to a 2.1% growth in Q2.
The market attention will then shift to the US PCE Price Index, which will provide some meaningful impetus ahead of the FOMC meeting next week.

Technical Analysis: Gold price could make a fresh attempt to conquer $2,000 psychological mark

From a technical perspective, the emergence of fresh buying near the $1,953-1,952 resistance breakpoint, turned support, and the subsequent move up favours bullish traders. That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into overbought territory. This, in turn, suggests that the Gold price might continue to confront stiff barrier near the $2,000 psychological mark. A sustained strength beyond, however, has the potential to lift the XAU/USD further towards the next relevant hurdle near the $2,022 area.

On th flip side, the Asian session low, around the $1,980 level, now seems to protect the immediate downside ahead of the $1,971-1,970 region. Some follow-through selling might expose the weekly trough, around the $1,953-1,952 zone touched on Tuesday. The latter represents a strong horizontal resistance breakpoint and should act as a key pivotal point. A convincing break below will make the Gold price vulnerable to accelerate the fall back towards challenging the 200-day Simple Moving Average (SMA), currently pegged near the $1,932-1,931 region.

US Dollar price in the last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the New Zealand Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.07%	0.51%	0.71%	0.87%	0.44%	1.29%	-0.08%
EUR	0.07%		0.59%	0.78%	0.93%	0.51%	1.35%	-0.01%
GBP	-0.52%	-0.59%		0.20%	0.37%	-0.07%	0.77%	-0.60%
CAD	-0.72%	-0.78%	-0.19%		0.14%	-0.26%	0.58%	-0.80%
AUD	-0.86%	-0.92%	-0.34%	-0.15%		-0.42%	0.43%	-0.95%
JPY	-0.43%	-0.53%	0.05%	0.26%	0.44%		0.85%	-0.54%
NZD	-1.30%	-1.39%	-0.81%	-0.59%	-0.42%	-0.83%		-1.38%
CHF	0.08%	0.01%	0.59%	0.80%	0.95%	0.52%	1.37%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.