Gold price recovers a major part of modest intraday losses, remains below $2,750 level

• Gold price attracts some dip-buying on Monday and draws support from a combination of factors. 
• Middle East tensions, US election jitters and a modest USD pullback seem to benefit the XAU/USD. 
• Bets for smaller Fed rate cuts and rising US bond yields might cap the upside for the precious metal.

Gold price (XAU/USD) recovers a major part of its intraday losses and climbs back above the $2,740 level, or a fresh daily top heading into the European session on Monday. Safe-haven demand stemming from Middle East tensions and US election jitters continues to act as a tailwind for the precious metal. Apart from this, a modest US Dollar (USD) pullback from its highest level since July 30 turns out to be another factor offering some support to the commodity. 

Meanwhile, the prospects for smaller rate cuts by the Federal Reserve (Fed), along with deficit-spending concerns after the US election, remain supportive of elevated US Treasury bond yields. Adding to this, a positive tone around the equity markets might cap the Gold price. Traders also seem reluctant ahead of this week's key US macro releases – the Advance Q3 GDP print, the Personal Consumption Expenditures (PCE) Price Index and the Nonfarm Payrolls (NFP) report. 

Daily Digest Market Movers: Gold price draws support from geopolitical risks and US election uncertainty

• The US Dollar added to its recent strong gains registered over the past four weeks and climbed to its highest level since July 30 amid bets for a less aggressive policy easing by the Federal Reserve. 
• According to the CME Group's FedWatch Tool, the markets have nearly fully priced in the possibility of a regular 25 basis points rate cut by the US central bank at its November policy meeting. 
• The latest poll indicates a tight race between Vice President Kamala Harris and the Republican nominee Donald Trump amid deficit-spending concerns after the November 5 US presidential election.
• Moreover, the US macro releases on Friday added to a string of recent upbeat data and suggested that the economy remains on strong footing, validating market bets for smaller Fed rate cuts.
• The US Census Bureau reported that Durable Goods Orders in the US declined by 0.8% in September, lower than the 1% fall expected, while new orders excluding transportation increased by 0.4%. 
• Adding to this, the University of Michigan's Consumer Sentiment Index reached a six-month high of 70.5 in October, better than both the preliminary result and the previous month's reading. 
• The yield on the benchmark 10-year US government bond stands firm near a three-month high touched last week, which is seen benefiting the USD and weighing on the non-yielding precious metal. 
• Iran on Saturday indicated that it would not retaliate against Israeli strikes on military targets across its territory if a deal is reached for a ceasefire agreement in the Gaza Strip and Lebanon. 
• China’s Vice Minister of Finance, Liao Min, said on Monday that the country will step up countercyclical adjustments of its macro policies to bolster economic recovery in the fourth quarter.

Technical Outlook: Gold price needs to breakout through trading range before the next leg of a directional move

From a technical perspective, last week's repeated failures to find acceptance or build on momentum beyond the $2,748-2,750 area warrant some caution for bullish traders. Moreover, the recent range-bound price action witnessed over the past week or so points to indecision among traders over the next leg of a directional move. Hence, it will be prudent to wait for a sustained strength beyond the said barrier or a convincing break below the short-term trading range support near the $2,720-2,715 zone, before positioning for a firm near-term trajectory. 

Meanwhile, some follow-through buying beyond the $2,748-2,750 region should allow the Gold price to retest the all-time peak, around the $2,658-2,659 area touched earlier this month. The subsequent move up could lift the XAU/USD towards the $2,770 zone, representing a nearly four-month-old ascending trend-line resistance, en route to the $2,800 round-figure mark.

On the flip side, weakness below the $2,720-2,715 region is likely to find decent support near the $2,700 mark, which if broken decisively should pave the way for deeper losses. The gold price might then accelerate the corrective fall towards intermediate support near the $2,675 area and eventually drop to the $2,657-2,655 horizontal support.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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