Gold experienced an increase during the European session, influenced by the possibility of Federal Reserve rate cuts and ongoing geopolitical tensions. Despite a dip-buying interest, the positive risk sentiment restricted significant gains for the precious metal. The US Dollar’s struggle to maintain momentum after a prior rebound further supported Gold, as anticipation grows that the Federal Reserve might lower borrowing costs twice more this year.
Despite a US government shutdown, global markets showed optimism, benefiting Wall Street and Asian equities, which affected the demand for Gold. Traders expect upcoming speeches from Federal Reserve members to influence the US Dollar and impact Gold’s movement. However, Gold remains poised for a seventh consecutive week of gains, with market participants watching key price levels for future direction.
Geopolitical Events And Gold’s Role
Geopolitical events, such as US assistance to Ukraine, continue to underpin Gold’s value amidst broader economic discussions. Central banks are major Gold buyers, recently adding 1,136 tonnes in 2022. The relationship between Gold, the US Dollar, and interest rates remains notable, with weaker Dollar predictions favouring Gold. Additionally, Gold serves as a hedge against inflation and economic uncertainties, proving its role as a safe-haven asset in turbulent times.
We are seeing a tug-of-war in the gold market, with strong fundamental support clashing with the current risk-on sentiment in equities. Expectations for Federal Reserve easing are solidifying, as the CME FedWatch Tool now shows an 85% probability of a 25-basis-point cut at the October 29th meeting. This underlying belief is keeping a floor under the gold price, making dip-buying attractive.
The US Dollar remains on the defensive, which is a primary driver for gold’s strength. We note that the current government shutdown is a wild card; looking back at the 2018-2019 shutdown, we saw a temporary dip in economic activity which ultimately supported gold. Initial jobless claims data released yesterday showed a minor uptick to 225,000, which some are already attributing to the initial effects of the shutdown on federal contractors.
Geopolitical tensions are providing a constant, underlying bid for the precious metal. The recent confirmation of US intelligence support for Ukrainian long-range strikes on Russian energy infrastructure adds a layer of uncertainty that prevents any significant sell-off. This situation reminds us of the initial price spikes we saw in early 2022, though the market now seems more accustomed to this background risk.
Trading Strategies And Market Outlook
Given the overbought daily RSI and the price being capped by the risk-on mood, outright long positions near the all-time high of $3,900 seem risky for the immediate term. We believe the current environment is ideal for volatility-based derivative strategies. Buying November-expiry straddles or strangles could allow traders to profit from a significant price break, whether it’s a surge past $3,900 on weak data or a drop towards $3,800 if risk appetite continues.
For those trading futures, we see key trigger points for entry in the coming weeks. A sustained move above the $3,865 resistance level would be our signal to re-establish long positions, targeting a retest of the $3,900 peak. Conversely, a definitive break below the $3,820 support area would indicate that a deeper correction is underway, opening the door for short positions aimed at the $3,750s.
