Gold price keeps the red amid positive risk tone, geopolitics/Fed rate cut bets limit downside

• Gold price attracts some sellers for the second straight day, though the downside seems limited.
• The optimism over China’s stimulus measures drives some haven flows away from the XAU/USD.
• Geopolitical risks and dovish Fed expectations could help limit losses for the safe-haven commodity. 

Gold price (XAU/USD) trades with a negative bias for the second straight day on Monday, albeit it lacks follow-through selling and remains within striking distance of the all-time peak touched last week. Against the backdrop of the prevalent risk-on environment, bolstered by China's stimulus measures, a modest US Dollar (USD) uptick turns out to be a key factor exerting some downward pressure on the safe-haven precious metal. 

That said, bets for a more aggressive policy easing by the Federal Reserve (Fed) keep a lid on any meaningful upside for the USD and act as a tailwind for the non-yielding Gold price. Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East help limit the downside for the XAU/USD. Traders now look forward to Fed Chair Jerome Powell's speech for some impetus later during the US session. 

Daily Digest Market Movers: Gold price bulls remain on the sidelines despite geopolitical risks, dovish Fed expectations

• Israel expanded its confrontation with Iran's allies – Houthis in Yemen and Hezbollah in Lebanon – and launched aggressive aerial assaults on Sunday, fueling fears about an all-out war in the Middle East.
• According to a statement by the Israeli Defence Forces dozens of aircraft, including fighter jets, power plants and a seaport at the Ras Issa and Hodeidah ports in Yemen were targeted in the airstrikes.
• Israeli airstrikes across Lebanon killed the deputy head of the militant group Hezbollah's Central Council, Nabil Kaouk, making him the seventh leader slain in Israeli attacks in a little over a week. 
• Investors now seem concerned that the fighting could spin out of control and draw in Iran and the United States, Israel's main ally, which, in turn, should act as a tailwind for the safe-haven Gold price. 
• The current market pricing indicates a greater chance that the US Federal Reserve will again lower borrowing costs by 50 basis points for the second straight monetary policy meeting in November. 
• Dovish Fed expectations fail to assist the US Dollar to register any meaningful recovery from its lowest level since July 2023 and should contribute to limiting losses for the non-yielding yellow metal. 
• St. Louis Fed President Alberto Musalem said on Friday that the US central bank should revert to cutting interest rates gradually after a larger-than-usual half-point reduction in the September meeting.
• The global risk sentiment gets an additional boost after the People's Bank of China announced on Sunday that it would tell banks to lower mortgage rates for existing home loans by October 31.
• This comes on top of last week's slew of monetary, fiscal and liquidity support measures – China's biggest stimulus package since the pandemic – and remains supportive of the upbeat mood. 
• China’s official Manufacturing PMI improved to 49.8 in September from 49.1, beating estimates of 49.5, while the NBS Non-Manufacturing PMI unexpectedly fell to 50.0 from August’s 50.3 figure.
• China's Caixin Manufacturing PMI contracted to 49.3 in September, from 50.4 in the previous month, and the Caixin Services PMI dropped to 50.3 during the reported month from 51.6 in August.
• Meanwhile, the upbeat mood is seen exerting some downward pressure on the safe-haven precious metal as traders now look to Fed Chair Jerome Powell's speech for some meaningful impetus.

Technical Outlook: Gold price bullish potential seem intact, ascending trend-channel beakout remains in play

From a technical perspective, any subsequent fall is likely to find decent support near a short-term ascending trend-channel resistance breakpoint, around the $2,625 region. This is followed by the $2,600 mark, which if broken decisively could pave the way for some meaningful downside in the near term. Given that the Relative Strength Index (RSI) on the daily chart is still hovering near the overbought zone, the Gold price might then accelerate the slide towards the $2,560 intermediate support en route to the $2,535-2,530 region.

On the flip side, the $2,670-2,671 area now seems to act as an immediate hurdle ahead of the $2,685-2,686 zone, or the record high touched last Thursday. This is closely followed by the $2,700 round figure, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a multi-month-old uptrend.

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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