- Gold prices attracted some sellers for the second day in a row, but the decline appears limited.
- The positive sentiment regarding China’s support has caused some safe-haven currencies to rise against gold/dollar.
- Geopolitical risks and dovish expectations from the Fed could contribute to the decline in safe-haven assets.
Gold prices (XAU/USD) remained on the losing side for a second straight day on Monday, but consolidation could help stem further losses. Israeli fighting on the Lebanese border raises the risk of more regional conflict in the Middle East. And news that Japan’s new Prime Minister Shigeru Ishiba plans to hold elections on Oct. 27, along with uncertainty in the U.S., should provide support for the precious metal.
In addition, dovish expectations from the Fed have put dollar bulls on the defensive, with the benchmark close to levels seen since July 2023 on Friday and could affect the competition in primary rates. Meanwhile, market sentiment has been optimistic amid growing support from China over the weekend, leading to some gains in safe-haven gold/dollar ahead of Fed Chair Jerome Powell’s speech in the US session on Monday.
Daily Summary Market Action: Gold prices remain in the red amid bullish sentiment and potential downside outlook
- Israel has intensified its conflict with Iran’s allies – Yemen’s Houthis and Lebanon’s Hezbollah – and launched a deadly airstrike on Sunday, raising fears of war in the Middle East.
- Dozens of aircraft were targeted, including aircraft carriers, power plants and the Yemeni ports of Ras Issa and Hodeidah, the IDF said.
- Israeli airstrikes across Lebanon killed the deputy head of the militant group Hezbollah’s Central Council, Nabil Kaouk, making him the seventh leader slain in Israeli attacks in a little over a week.
- Investors now seem concerned that the fighting could spin out of control and draw in Iran and the United States, Israel’s main ally, which, in turn, should act as a tailwind for the safe-haven Gold price.
- The current market pricing indicates a greater chance that the US Federal Reserve will again lower borrowing costs by 50 basis points for the second straight monetary policy meeting in November.
- Dovish Fed expectations fail to assist the US Dollar to register any meaningful recovery from its lowest level since July 2023 and should contribute to limiting losses for the non-yielding yellow metal.
- St. Louis Fed President Alberto Musalem said on Friday that the US central bank should revert to cutting interest rates gradually after a larger-than-usual half-point reduction in the September meeting.
- The global risk sentiment gets an additional boost after the People’s Bank of China announced on Sunday that it would tell banks to lower mortgage rates for 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 remains supportive of 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 August’s 50.3 figure.
- China’s Caixin Manufacturing PMI contracted to 49.3 in September, from 50.4 in the previous month, and the Caixin Services PMI dropped to 50.3 during the reported month from 51.6 in August.
- Meanwhile, the upbeat mood is seen exerting some downward pressure on the safe-haven precious metal as traders now look to Fed Chair Jerome Powell’s speech for some meaningful impetus.
Technical Outlook: Gold price continues to rise, rejection of $2,625 support is significant
From a technical perspective, a subsequent decline would see good support near the short-term uptrend channel against the breakout point (near the $2,625 region). $2,600 is next and if it is determined to breakout, it could open the way for some near-term downside. With the Relative Strength Index (RSI) still hovering near the overbought zone on the daily chart, gold could continue to slide towards the $2,560 support center and the $2,535-$2,530 range.
On the other hand, the $2,670-$2,671 area appears to be a barrier just ahead of the $2,685-$2,686 area, which was the all-time high set on Thursday. This is followed by a chart showing $2,700, a breach that would be seen as a new breakout for bullish traders and pave the way for the continuation of the multi-month uptrend.
