Gold Prices React to Truce Hopes in the Middle East
- Gold drops to a daily low of $2,604 amid truce hopes between Israel and its neighbors.
- Safe-haven demand weakens as Hezbollah supports ceasefire efforts, while rising US Treasury yields further weigh on Bullion.
- Traders adjust Fed rate cut expectations with focus shifting to upcoming US inflation data, jobless claims and consumer sentiment.
Gold prices experienced a sharp decline on Tuesday, driven by positive developments in the Middle East conflict. Reports of Hezbollah supporting calls for a truce between Israel and its neighbors led to a decrease in safe-haven demand and prompted traders to take profits. The XAU/USD pair is currently trading at $2,615, down more than 1%.
Despite fears of escalating tensions in the region, US equities were supported by an improved market sentiment. However, the potential for a resolution to the conflict could lead to a shift from safe-haven assets to riskier investments. According to CNN, “Hezbollah supports efforts aimed at achieving a ceasefire in Lebanon, its top official said on Tuesday.”
This development triggered a sell-off in XAU/USD, pushing prices down to a daily low of $2,604 before bouncing back. Additionally, the increase in US Treasury yields added pressure on gold prices. The US 10-year benchmark note rate remained above 4%, rising over six basis points following the September Nonfarm Payrolls report.
As a result, interest rate traders adjusted their expectations regarding the Federal Reserve’s next moves. While most Fed speakers maintained a cautious stance on further monetary policy easing, some, like St. Louis Fed President Alberto Musalem, projected only one additional rate cut by the end of the year.
Looking ahead, the focus will be on upcoming US economic data, including inflation figures, jobless claims, and consumer sentiment, which could influence market sentiment and gold prices.
Daily Digest Market Movers: Gold Price Plunges on Hopes of Truce in Middle East
- The US Dollar Index (DXY) stands at 102.52, reflecting stability at levels last seen in August 2024.
- Following a positive US jobs report, recession concerns have eased, leading major Wall Street banks to revise their Fed rate cut expectations.
- According to CME FedWatch Tool data, the likelihood of a 25 bps rate cut by the Fed is 85.3%, while the chances of a 50 bps cut are at 0%, with a 14.7% probability of no rate change.
- The People’s Bank of China (PBoC) paused its gold purchases for the fifth consecutive month, keeping its reserves unchanged at 72.8 million troy ounces.
XAU/USD Technical Analysis: Gold Price Slips as Sellers Target Support Levels
Gold prices fell below $2,650 on Tuesday, signaling a potential downward trend. While the price briefly dipped to $2,605, it has since recovered slightly. However, the lack of upward momentum suggests a possible further decline.
The Relative Strength Index (RSI) indicates increasing bearish pressure, despite being in bullish territory.
If XAU/USD breaches the $2,624 support level, it could target the $2,600 mark, with the 50-day Simple Moving Average (SMA) at $2,534 as the next key support level.
On the upside, a daily close above $2,650 would be needed for a potential rally towards $2,670 and beyond to challenge the YTD high of $2,685.
Fed FAQs
Monetary policy in the US is influenced by the Federal Reserve (Fed), which aims to achieve price stability and full employment by adjusting interest rates. When inflation is high, the Fed raises rates to curb inflation, strengthening the US Dollar. In contrast, lowering rates can stimulate borrowing and weaken the Dollar in times of low inflation or high unemployment.
The Fed holds eight policy meetings a year, where decisions on interest rates are made by the Federal Open Market Committee (FOMC), consisting of twelve Fed officials.
In extreme situations, the Fed may implement Quantitative Easing (QE) to increase credit flow in the financial system. QE usually weakens the US Dollar. Conversely, Quantitative Tightening (QT) involves reducing bond purchases, which can strengthen the Dollar.