Gold Price Correction: An Insightful Analysis
- Gold price corrects from near record highs of $2,749 on cautious optimism.
- The US Dollar stays firm with Treasury bond yields on potential Trump win and less aggressive Fed easing.
- BRICS Summit could cap Gold price downside, as extremely overbought RSI conditions ease.
Gold price is currently experiencing a minor correction, following its recent surge to a new record high of $2,749 in the US. The strength of the US Dollar (USD) and rising US Treasury bond yields are putting pressure on the Gold price.
Factors Influencing Gold Price Correction
The current uptrend in US Treasury bond yields and the strengthening Greenback can be attributed to two key factors impacting the Gold price:
- Anticipation of a potential Trump win in the upcoming US presidential election, which is driving expectations of inflationary policies leading to higher interest rates.
- Increasing likelihood of the US Federal Reserve (Fed) adopting a gradual approach to interest rate cuts, supporting higher US yields and a stronger USD.
Market sentiment favors a 25-basis points (bps) rate cut in November, with a 91% probability according to the CME Group’s FedWatch tool. Recent comments from San Francisco Fed President Mary Daly further reinforce expectations of a gradual policy easing by the Fed.
Despite the prevailing strength in US Treasury bond yields and the Greenback, Gold price hit a new all-time high of $2,749. Geopolitical tensions between Iran and Israel, along with discussions on de-dollarization at the ongoing BRICS Summit, have boosted investor sentiment towards the precious metal.
As the BRICS Summit continues, speculations arise about a potential gold-backed currency to rival the US Dollar, with BRICS countries collectively holding about 20% of global Gold reserves.
Gold traders will closely monitor developments at the BRICS Summit, as well as key US housing data and Federal Reserve communications for further market direction.
Technical Analysis of Gold Price
Key technical insights on Gold price:
- Gold price is testing the $2,730 level after retracing from the record high.
- A break below $2,730 could challenge the previous low of $2,719.
- Support for Gold buyers lies at the $2,700 mark.
- The 14-day Relative Strength Index (RSI) has eased from extreme overbought conditions, currently around 72.00, signaling a potential reversal in Gold price movement.
- To resume its upward momentum, Gold price needs to surpass the $2,749 high and target the $2,800 psychological level.
Looking ahead, the rising trendline resistance at $2,756 could present a significant barrier for Gold price.
Insights into BRICS Summit and Currency Speculations
The BRICS alliance, comprising Brazil, Russia, India, China, and South Africa, aims to enhance cooperation among emerging economies. Key points to note:
- BRICS countries represent 32% of the global economy based on purchasing power parity, compared to 30% for the G7 nations.
- Speculations suggest the possibility of a gold-backed currency within the BRICS alliance to reduce reliance on the US Dollar in international trade.
While discussions on de-dollarization strategies are ongoing, the implementation of a new currency remains a complex process that requires further deliberation.