- Gold prices rebounded from multi-week lows on Thursday, amid weak interest rates.
- Bets on the Fed’s planned 25 basis point rate cut in November could keep the XAU/USD pair under pressure.
- Investors now await the release of the U.S. Consumer Price Index report for new guidance.
Gold prices (XAU/USD) rose in the Asian session on Thursday and now appear to have snapped a six-day losing streak, falling to a near three-week low that it retested the previous day. The US dollar (USD) entered a consolidation phase as investors opted to wait and see ahead of today’s US Consumer Price Index (CPI) release. Some of the changes have proven to be significant in providing support to the precious metal in the face of negative data. Tighter policy from the Federal Reserve (Fed) seems elusive. This expectation was echoed in the report from the September Federal Open Market Committee (FOMC) meeting, which is expected to boost US Treasury yields and limit interest rate implications. Therefore, strong follow-on buying is needed to ensure that the downside correction in the XAU/USD pair holds true for the duration.
Daily Summary of Business Action: Prices higher in some transactions ahead of US Consumer Price Index (CPI) report
- Minutes from the September FOMC meeting showed most supported a 50 basis point rate cut because the committee was confident that inflation would continue toward its 2% target.
- But some participants said they wanted only a 25 basis point cut, citing high inflation, economic growth and low unemployment.
- Moreover, there was a consensus that the outsized rate cut would not lock the Federal Reserve into any specific pace for future cuts, lifting the US Dollar to a nearly two-month high.
- Dallas Fed President Lorie Logan pointed to meaningful uncertainties surrounding the economic outlook, though argued that she favored smaller rate reductions going forward.
- Boston Fed President Susan Collins stressed that policy is not on a pre-set path and will remain data-dependent and that it is important to preserve healthy labor market conditions.
- San Francisco Fed President Mary Daly said that one or two more rate cuts this year are likely, though noted that a 50 bps cut in September does not say anything about the size of next cuts.
- Traders are now pricing in a greater chance that the Fed will lower borrowing costs by only 25 bps in November and over a 20% probability that it will keep rates on hold in November.
- The yield on the rate-sensitive two-year US government bond shot to its highest yield since August 19 and the benchmark 10-year Treasury yield climbed to levels not seen since July 31.
- Investors are also wary of escalating tensions between Israel and Iran, with Israeli Defense Minister Yoav Galante vowing that an attack on Iran would be “deadly, decisive and surprising.”
- This, coupled with some earlier changes in the US Consumer Price Index (CPI), provided some support to the safe-haven gold price during Thursday’s Asian meeting.
Technical Outlook: Gold needs to fall below $2,600 for bears to maintain control
From one perspective, the drop below the $2,630 area, which represents the lower end of the short-term market this week, is seen as a major factor in the market’s decline. However, oscillators on the calendar are still in positive territory despite the loss of traction. Also, gold prices have managed to stay above the $2,600 level so far. This should make it cautiously wait for a sustained reaction below the above before further losses. XAU/USD is likely to continue its downtrend towards support near the $2,560 area and the $2,535-2,530 area before falling to the psychological $2,500 level.
On the other hand, the market support rally (around $2,630-2,635) now seems to be an urgent concern. Any further gains could be seen as selling and could remain near the horizontal barriers of $2,657-2,658. Strengthening gold prices over the latter could take gold prices into the supply area of $2,670-2,672, above which the bulls could attack the all-time highs seen in September around $2,685-2,686. This is followed by the $2,700 level, which, if broken, would pave the way for the continuation of the month-long uptrend.
