Gold Rallies Towards All-Time High as US Manufacturing Data Declines
- Gold rallies ever closer to its previous all-time high at $2,685.
- A decline in manufacturing activity in the state of New York triggered the latest bout of buying.
- A break above would signal a new all-time high and an extension of the dominant bull trend.
Gold (XAU/USD) is making significant gains, reaching the lower $2,680s on Wednesday after a dip in US Manufacturing data on Tuesday caused market jitters. This led to a decline in the US Dollar (USD), lower US Treasury yields, and a downward revision in expected US interest rates. Lower interest rates are favorable for Gold as they reduce the opportunity cost of holding the non-interest-paying asset.
Gold Strengthens Post US Manufacturing Data Miss
Gold is strengthening after the NY Empire State Manufacturing Index showed a decline into negative territory in October, registering at minus 11.4. This follows an 11.5 rise in September and falls short of the expected 2.3. This drop marks the index’s lowest level in five months after a brief recovery in August.
However, the upside for Gold may be limited as Federal Reserve (Fed) officials are cautious in adopting a too dovish stance. Recent comments from Fed officials suggest a balanced approach towards rate cuts, with some officials remaining optimistic about the US economy.
Market indicators show a high probability of a 25 basis point rate cut in November, with minimal chances of no change, according to the CME FedWatch tool.
Factors Affecting the Gold Market
Investors are now looking towards US September Retail Sales data and a speech from Fed Governor Waller for further insights. Additionally, tensions in the Middle East could contribute to sustaining upward momentum for Gold, especially amid expectations of escalating conflict.
Technical Analysis: Gold Nearing All-Time High
XAU/USD 4-hour Chart
Gold has surpassed key resistance levels around $2,670 and is approaching the all-time high of $2,685. A breakthrough at this level would indicate further upside potential towards the next target at $2,700. The current trend favors upward movement, with a break below $2,600 required to reverse the trend to bearish.
Gold FAQs
What is the role of Gold in the financial market?
Gold has historically served as a store of value and medium of exchange. It is considered a safe-haven asset during turbulent times, a hedge against inflation, and depreciating currencies due to its intrinsic value and independence from specific issuers or governments.
Why do central banks hold Gold reserves?
Central banks hold Gold reserves to support their currencies during economic uncertainties, diversify their reserves, and enhance trust in the economy. Central banks worldwide have been increasing their Gold reserves, with emerging economies like China, India, and Turkey leading the trend.
What factors influence the price of Gold?
Gold prices are influenced by various factors, including geopolitical instability, recession fears, interest rates, and the value of the US Dollar. Gold tends to rise during times of economic uncertainty and lower interest rates, while a strong Dollar can suppress its price.