Gold prices (XAU/USD) experienced a slight decline during the Asian session on Wednesday, though they remain close to the record high reached the previous day. The US Dollar (USD) climbed to its highest level since early August, fueled by expectations of smaller interest rate cuts from the Federal Reserve. This has led to a rise in US Treasury bond yields, prompting some profit-taking in gold amid slightly overbought conditions on the daily chart.
Despite this dip, any significant decline in gold prices seems unlikely, given the geopolitical risks from ongoing conflicts in the Middle East and uncertainties surrounding US politics. The prevailing risk-off sentiment and anticipated interest rate cuts by major central banks are expected to support gold prices and limit potential losses. Analysts suggest waiting for strong selling pressure before confirming that the precious metal has peaked in the near term.
The ongoing rally of the US Dollar puts downward pressure on gold prices as expectations for a less aggressive easing policy from the Federal Reserve grow. According to CME Group’s FedWatch Tool, traders are pricing in nearly a 90% chance that the Fed will cut borrowing costs by 25 basis points at the upcoming November meeting.
Speculation regarding former President Donald Trump’s potential victory in the November 5 presidential election also raises concerns about the introduction of inflationary tariffs, contributing to a selloff in the US bond market. This situation pushes yields to multi-month highs, further attracting flows away from non-yielding assets like gold.
The yield on the benchmark 10-year US government bond hovered around 4.2%, after exceeding that level for the first time since July, amid renewed worries about inflation resurgence. Recent rocket attacks by Hezbollah on bases near Tel Aviv and a naval base west of Haifa have heightened market tensions, with investors awaiting a possible Israeli response to Iran’s ballistic missile attack on October 1.
Diplomatic efforts to resolve the year-long Middle East conflict have so far failed, impacting investor sentiment and supporting gold as a safe-haven asset. Traders are now looking ahead to the US Existing Home Sales data for short-term market direction, as well as a speech by Richmond Fed President Thomas Barkin later in the session.
From a technical standpoint, gold prices faced resistance near the $2,750 mark, followed by the upper boundary of a two-week ascending channel around $2,767. This resistance level is crucial; a decisive breakout could lead to a continuation of the uptrend, potentially pushing prices toward the $2,800 mark.
Conversely, if prices decline, support is likely around the $2,725 level, which represents the lower end of the trend channel. A significant drop below this point could trigger technical selling, dragging gold prices down to $2,700, with further support near the $2,680-$2,675 range, close to the 100-period Simple Moving Average (SMA) on the 4-hour charts, which could serve as a strong base.
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