Gold prices (XAU/USD) continued to face selling pressure for a second consecutive day on Tuesday, retreating from a one-week high reached the previous day. The recent uptick in the US Dollar (USD), which has soared to its highest level since August 8, is attributed to firming expectations for a less aggressive monetary policy from the Federal Reserve (Fed) and speculation surrounding a potential 25 basis points rate cut in November. Additionally, the prevailing risk-on sentiment is dampening demand for the precious metal.
Investor confidence was further shaken by disappointing news regarding China’s fiscal stimulus and weak inflation data released over the weekend. These factors have led to reduced flows into gold, although ongoing geopolitical tensions in the Middle East may help mitigate deeper losses. Caution is advised before making aggressive bearish bets on XAU/USD, especially given the potential for intraday declines.
Market Highlights:
The US Dollar’s rise to its highest level since August 8 was driven by increasing acceptance of a more cautious approach to interest rate cuts by the Federal Reserve.
Minneapolis Fed President Neel Kashkari emphasized that current monetary policy remains restrictive and indicated that modest rate cuts could be warranted as the job market stays robust.
Fed Governor Christopher Waller noted the economy is performing well, suggesting that the central bank should approach rate cuts with caution, especially compared to discussions held during the September meeting.
The lack of specific details regarding China’s fiscal stimulus, combined with signs of economic softness in the world’s largest gold consumer, has prompted selling pressure on gold as the week begins.
Geopolitical tensions escalated following Israel’s promise of a strong response to a Hezbollah drone attack that resulted in casualties, raising concerns about further conflict in the region. Such instability typically supports safe-haven assets like gold.
Traders are now looking ahead to the release of the Empire State Manufacturing Index, which, along with statements from Fed officials, may create short-term trading opportunities for XAU/USD in the North American session.
Technical Analysis: From a technical standpoint, the overnight swing high near the $2,666-$2,667 range presents an immediate obstacle for gold prices. Sustained movement above this level could propel prices back toward the all-time high around $2,685-$2,686, followed closely by the key $2,700 mark. A decisive breakthrough at this level would signal a continuation of the established multi-month uptrend.
Conversely, if gold prices fall below the immediate support level of $2,632-$2,630, buying interest may emerge, but significant selling pressure could surface near the $2,600 threshold. Failure to hold this level would act as a bearish signal, potentially driving prices down to the next key support around the $2,560 zone. A further corrective decline could extend toward the $2,535-$2,530 range, approaching the psychological $2,500 level.
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