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Gold prices fall as US interest rates rise due to the risky sentiment

Posted on by Vaseline
Gold prices fall as US interest rates rise due to the risky sentiment

  • Gold is trading at $2,645, down 0.30%, while 10-year US Treasury yields rise to 4.026%, further limiting upside potential.
  • The escalation of conflicts in the Middle East involving Israel, Hamas and other groups such as Houthis is supporting Gold amid risk sentiments.
  • Market expectations of a 25 basis point Fed rate cut remain high at 83.5%, while a 50 basis point cut is off the table for the time being.

Gold prices fall during Monday’s North American session, but remain within the $2,630 – $2,659 range as US Treasury yields cap the yellow metal’s advance, while the escalation of conflict in the Middle East causes it precious metal does not fall further. The XAU/USD is trading at $2,645 and losing 0.30%.

The market mood has deteriorated due to the war in the Middle East. The firefight continued as Israel continued its ground operations in Lebanon, while Hamas launched rockets at Tel-Aviv. Hopes for a ceasefire faded as the conflict spread, with other groups such as Houthis attacking ships in the Red Sea.

Meanwhile, the latest US Nonfarm Payrolls report from September caused a jump in US government bond yields.

Traders ignored a 50 basis points (bps) cut by the Federal Reserve (Fed), according to data from CME FedWatch Tool. The chances of a Fed rate cut of 25 basis points are 83.5%. Meanwhile, the chances of a 50 basis point rate cut are 0%, but on a hold they have risen to 16.5%.

U.S. 10-year Treasury yields rise more than five and a half basis points to 4.026% as traders appear confident the Fed will cut borrowing costs by 25 basis points at each of the final two policy meetings in 2024.

In the meantime, the Greenback continues to hold on to minimal gains as the US Dollar Index (DXY), which tracks the value of the dollar against a basket of six currencies, stands at 102.52, virtually unchanged but at a level that was last seen in August 2024.

Next week’s US agenda will include the release of inflation data, the minutes of the Fed’s latest meeting, unemployment claims and consumer sentiment from the University of Michigan.

Daily analysis of market movements: Gold prices fall as fears of a US recession recede

  • After the latest US jobs report, fears of a recession disappeared. That’s why most Wall Street banks, such as Citi, JP Morgan and Bank of America, revised their November Fed call from a 50 to 25 basis point rate cut.
  • Minneapolis Fed President Neel Kashkari said he sees no signs of a “resurgent inflation” and is confident inflation will return to 2%.
  • Meanwhile, the People’s Bank of China (PBoC) halted its bullion purchases for a fifth month. Chinese reserves remained unchanged as their holdings stood at 72.8 million troy ounces at the end of last month.

XAU/USD Technical Analysis: Gold prices fall as sellers see support below $2,650

Gold prices remain within a trading range, while the Relative Strength Index (RSI) suggests a decline is underway despite the positive data. Yet the slope accelerates downward and closes towards the neutral line.

If XAU/USD falls below the September 30 low of $2,624, it could sponsor a move lower towards $2,600. With further weakness, the next bottom will be the 50-day Simple Moving Average (SMA) at $2,531.

On the other hand, if Gold pushes a daily close above $2,650, XAU/USD will need to clear $2,670 to break the year-to-date high of $2,685. The next step is the $2,700 limit.

Frequently asked questions about gold

Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Currently, aside from its luster and use for jewelry, the precious metal is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies because it is not dependent on a specific issuer or government.

Central banks are the largest gold owners. In their goal to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US dollar and US government bonds, which are both important reserves and safe havens. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. A stock market rally tends to weaken gold prices, while selloffs in riskier markets tend to favor the precious metal.

The price may change due to a wide range of factors. Geopolitical instability or the fear of a deep recession could quickly escalate gold prices due to its safe haven status. As a yield-less asset, gold tends to rise at lower interest rates, while higher monetary costs tend to weigh on the yellow metal. Still, most movements depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push up the price of gold.

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