GOLD Price Analysis – Oct 10, 2024
Daily Price Outlook
Gold prices (XAU/USD) managed to break a six-day losing streak on Thursday, bouncing back from a nearly three-week low and hovering around the 2,618 level.
However, this rebound lacks strong support and may lose some momentum due to rising expectations for a 25 basis points interest rate cut by the Federal Reserve (Fed) in November.
This scenario helps the US Dollar maintain its recent gains, reaching an eight-week high, which could weigh on the demand for gold.
Looking forward, traders are likely to adopt a wait-and-see approach ahead of the important US consumer inflation figures to be released later in the North American session.
The Consumer Price Index (CPI) report will be crucial in shaping expectations about the size of the Fed's rate cut next month, which could impact USD demand and influence gold prices.
Moreover, ongoing conflicts in the Middle East may present short-term trading opportunities for investors in the safe-haven metal.
Strong US Dollar and Rate Cut Expectations Pressure Gold Prices
On the US front, the broad-based US Dollar (USD) is maintaining its strong gains, recently reaching an eight-week high. This upward momentum is due to rising expectations for a 25 basis points (bps) interest rate cut by the Federal Reserve (Fed) in November.
Minutes from the September Federal Open Market Committee (FOMC) meeting revealed that most members supported a larger 50 bps cut, believing inflation would trend towards the 2% target.
However, some members preferred a smaller 25 bps reduction, citing ongoing high inflation, strong economic growth, and low unemployment rates.
Traders are now anticipating a higher chance that the Fed will only reduce rates by 25 bps in November, with over a 20% possibility that rates will remain unchanged. Dallas Fed President Lorie Logan expressed concerns about the economic outlook but favored smaller cuts.
Boston Fed President Susan Collins emphasized that the Fed's decisions will be data-dependent, aiming to maintain a healthy labor market. San Francisco Fed President Mary Daly noted that one or two more cuts could happen this year, but the September cut doesn't determine future moves.
Meanwhile, yields on the two-year and ten-year US government bonds have reached their highest levels since mid-August and late July, respectively.
Therefore, the strong US Dollar and rising interest rate expectations may pressure gold prices as higher rates increase the opportunity cost of holding non-yielding assets. Consequently, gold might struggle to gain traction, limiting its appeal to investors.
Escalating Middle East Tensions Boost Demand for Gold as a Safe Haven
Apart from this, the ongoing conflicts in the Middle East are attracting attention from investors seeking short-term opportunities in gold, a safe-haven asset.
There is growing concern over escalating tensions, particularly between Israel and Iran. Israeli Defense Minister Yoav Gallant has warned that any military action against Iran would be "lethal, precise, and surprising."
This raises fears of further instability in the region, prompting investors to consider gold as a protective measure against potential risks. As a result, gold could see increased demand if tensions continue to rise, impacting its price positively.
GOLD (XAU/USD) - Technical Analysis
Gold (XAU/USD) is trading at $2,614.40, up 0.26%, as the precious metal attempts to stage a recovery after several days of decline. The 4-hour chart shows Gold finding support near the $2,606 pivot point, which aligns with the trendline support observed since early October.
This level is critical, as maintaining it could foster further bullish momentum. Immediate resistance is positioned at $2,624, followed by the 50-day Exponential Moving Average (EMA) at $2,635.
A break above $2,635 could open the door for an advance toward $2,647, where stronger selling pressure may re-emerge.
However, if Gold fails to hold above the $2,606 pivot, the immediate support level shifts to $2,596, with deeper support at $2,587. A breach below these levels could signal a bearish shift, exposing prices to the $2,576 area.
The Relative Strength Index (RSI) currently stands at 43, indicating neutral sentiment but hovering near oversold territory.
This suggests that while bears have a slight upper hand, a potential reversal could be on the horizon if buying interest gains traction above $2,624.
The technical outlook remains cautious yet slightly optimistic, contingent on Gold's ability to stay above the $2,606 support level. Traders should watch for a decisive break above $2,635 to confirm the bullish bias, while a drop below $2,596 could trigger further selling.
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