Gold (XAU/USD) price retreats about 0.10%, trading at $4,163 on Friday, poised for a weekly loss as traders assess recent US inflation data, which, although hotter than foreseen, led investors to trim their hawkish bets for the Federal Open Market Committee (FOMC) October meeting.
Technical Analysis
Gold continues to trade sideways within the $4,100-$4,200 range and appears to have bottomed near the range low.
Momentum-wise, the Relative Strength Index (RSI) is bearish; there’s a mild positive divergence which could open the door for further upside.
For a bullish reversal, the first resistance for XAU/USD would be $4,200, followed by a test of the 100-day Simple Moving Average (SMA) at $4,242. Above, the 50-day SMA sits at $4,331, followed by the $4,500 mark.
If XAU/USD continues lower, initial support is at $4,100. A decisive break below that level would bring the October 14 low of $4,073 into view, followed by the July 29 cycle low at $3,996 and the July 17 low at $3,959. The yearly low at $3,941 lies below those levels.
Fundamental Analysis
XAU/USD struggles near $4,160 as elevated Treasury yields offset reduced Fed tightening expectations
This week, US inflation data was the highlight of the economic docket, with both figures, the Consumer Price Index (CPI) for September rising 3.7% YoY above estimates of 3.6% and up from August’s 3.4%, while the Producer Price Index (PPI) crushed forecasts of 5.3%, rising 6.3% YoY.
Market participants increased the odds of a Fed rate hike this month post-the CPI release, near 60%. However, as the session progressed, most investment banks updated their forecasts, with most confident for a hike in December.
Money markets have priced in a 16% chance of a 25 bps move by the FOMC at the October meeting, but for December, the odds are high at 89%, according to Prime Terminal.
Meanwhile, Fed Chair Kevin Warsh disappointed investors by not providing guidance on future interest rates, though he recognized the strength of the US economy.
Bullion has failed to rally despite investors using it as an inflation hedge, as surging US Treasury yields have undermined the yellow metal.
The US 10-year Treasury yield is gaining three basis points, up to 5.106%, but it has failed to boost the Greenback, amid a scenario of higher rates in the US.
The US Dollar Index (DXY), which measures the buck’s performance against six currencies, is down 0.10% at 101.87.
On the data front, Industrial Production rose 0.7% MoM in September, exceeding estimates of 0.4% and the prior month’s 0.1% expansion.
Next week, the US economic schedule will feature housing data, Initial Jobless Claims, and Flash PMIs, which are closely watched by investors.
XAU/USD Forecast Poll
1 Week
- 33%
- Bullish
- 0%
- Bearish
- 67%
- Sideways
1 Month
- 86%
- Bullish
- 0%
- Bearish
- 14%
- Sideways
1 Quarter
- 71%
- Bullish
- 0%
- Bearish
- 29%
- Sideways
Gold (XAU/USD)
In the Forex market, Gold functions as a currency. The particularity of Gold is that it is traded against the United States Dollar (USD), with the internationally accepted code for gold being XAU.
Known as a safe-haven asset, Gold is expected to appreciate in periods of market volatility and economic uncertainty. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn't rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. The United States is the country that holds the biggest resources of Gold in the world.
The XAU/USD pair tells the trader how many US Dollars are needed to purchase one troy ounce of Gold.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold prices escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher borrowing costs usually weigh on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars. A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Organizations that influence XAU/USD
- WGC (World Gold Council) is the market development organization for the Gold industry. Its aim is to stimulate and sustain demand for the precious metal.
- LBMA (London Bullion Market Association) is an organization whose members participate in this wholesale over-the-counter market for trading Gold and Silver. It is loosely overseen by the Bank of England. Most LBMA members are major international banks, bullion dealers, and refiners.
- COMEX (Commodity Exchange) is the primary market for trading metals. The COMEX merged with the New York Mercantile Exchange (NYMEX) in 1994 and joined the CME Group in 2008.
- CGSE (Chinese Gold and Silver Exchange Society) is an organization of Gold trading firms in Hong Kong that are participants of the Chinese Gold and Silver Exchange, the first exchange in Hong Kong.
- Central banks like the Federal Reserve (Fed), the European Central Bank (ECB) or the People's Bank of China (PBoC) significantly influence Gold prices through their monetary policies.
People that influence XAU/USD
- Neal Froneman, the World Gold Council's Chairman.
- Scott Bessent, the US Treasury Secretary.
- Xi Jinping, President of the People's Republic of China.
- The London Bullion Market Association members.
Circumstances that influence XAU/USD
The main variables traders should monitor to understand Gold's position are:
- Demand and supply: The balance between global Gold demand and its availability impacts its price.
- Economic uncertainty and currency devaluation: Gold is widely known as a safe-haven asset for investors in periods of economic uncertainty or when a currency faces devaluation.
- Practical applications: The use of Gold in technology innovations, jewelry manufacturing and other industrial applications.
Assets that influence XAU/USD
- Currencies: The US Dollar (USD) and the Euro (EUR) are the primary currencies influencing Gold prices. Other important currency pairs include EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD, and USD/CAD.
- Commodities: Silver and Gold are the most important precious metal commodities.
- Bonds: Influential fixed-income securities include the German Bund (a federal government-issued bond) and the US Treasury Note (T-Note).
- Indices: Key indices related to Gold and mining include the HUI (NYSE Arca Gold BUGS), the XAU (Philadelphia Gold and Silver Index) and the GDM (NYSE Arca Gold Miners Index).
- Exchanges: The most important stock exchanges for Gold are the New York Mercantile Exchange (COMEX), the Chicago Board of Trade, the Euronext/LIFFE, the London Bullion Market, the Tokyo Commodity Exchange, the Bolsa der Mercadorias e Futuros and the Korea Futures Exchange.