- Gold bulls turn cautious ahead of the crucial FOMC policy meeting starting Tuesday.
- The USD remains near its year-to-date low due to expectations of a 50 bps Fed rate cut, providing some support.
- China’s economic troubles, US political uncertainty, and geopolitical risks also contribute to the supportive backdrop for gold.
Gold prices (XAU/USD) edge lower during the Asian session on Tuesday, ending a three-day winning streak and retreating from the recent all-time high. Market apprehension ahead of the highly anticipated Federal Open Market Committee (FOMC) policy meeting starting today eases bearish pressure on the US Dollar (USD) and acts as a headwind for gold.
Despite this, several factors are likely to support the metal and limit any significant decline. Investors are increasingly expecting a substantial interest rate cut by the Federal Reserve (Fed) on Wednesday, keeping US Treasury bond yields at one or two-year lows and failing to boost the USD significantly. This ongoing situation continues to support gold's appeal. Additionally, concerns about China's economic slowdown, US political uncertainty, and persistent geopolitical risks from Middle Eastern conflicts add caution for bearish traders.
Daily Digest Market Movers: Gold Price Holds Steady Amid 50 bps Fed Rate Cut Bets
- Growing expectations for a significant interest rate cut by the Federal Reserve have driven the US Dollar to its lowest level since July 2023 and lifted gold prices to a new record high on Monday.
- The CME Group's FedWatch Tool indicates that the market is pricing in over a 60% chance of a 50 basis point rate cut by the Fed on Wednesday.
- Yields on the rate-sensitive 2-year US government bond have fallen to their lowest since September 2022, while the 10-year US Treasury yield is at its weakest since June 2023.
- The New York Empire State Manufacturing Index for September came in at 11.5, significantly better than the -3.9 expected and -4.7 previous, but had little effect on USD bulls.
- Weak Chinese economic data released over the weekend points to ongoing challenges in meeting the official 5% GDP growth target for 2024.
- Tensions in the Middle East have risen following Hamas' warning of further violence if Israel's military actions continue, increasing risks of broader conflict.
- Additionally, a second attempted assassination of Republican presidential candidate Donald Trump has heightened political uncertainty, adding support for gold.
- Bullish traders are pausing and awaiting the outcome of the two-day FOMC meeting before making further moves. The Fed's decision on Wednesday will include new economic projections and the dot-plot, followed by a press conference.
- Investors will closely watch Fed Chair Jerome Powell's remarks for insights into future rate cuts, which will influence USD demand and provide new momentum for gold.
Technical Outlook: Gold Price Dip-Buying Likely to Limit Downside; $2,530-$2,525 Key for Bulls
Technically, the Relative Strength Index (RSI) on the daily chart is nearing the overbought zone, which may deter new bullish positions. However, the uptrend along an ascending channel since June remains strong. The recent breakout above the $2,525-$2,530 supply zone suggests further gains are possible.
Resistance is expected near the $2,600 level, and if this is surpassed, gold could test the ascending channel's upper boundary around $2,620-$2,625. A sustained move above this range could signal a new bullish phase.
On the downside, a corrective decline may find support around the $2,555 level. The $2,530-$2,525 zone, now acting as support, should help limit further declines. A break below this support could lead to a drop to the $2,500 psychological level. A decisive move below $2,500 might trigger additional selling, pushing gold towards $2,470. Further weakness could test the $2,464 confluence zone, which includes channel support and the 50-day Simple Moving Average (SMA). A breach of this level could shift the bias towards bearish traders.
