Gold price edges higher for the second straight day, albeit lacks follow-through buying.
Geopolitical tensions, along with sliding US bond yields, lend support ahead of the FOMC.
The uncertainty over the timing of the first Fed rate cut might cap any meaningful upside.
Gold price (XAU/USD) gains some positive traction for the second straight day on Tuesday and steadily climbs back closer to the $2,040-2,042 supply zone during the first half of the European session. Fears that escalating tensions in the Middle East could trigger a wider war in the region keep a lid on the recent optimism in the markets. Apart from this, a further decline in the US Treasury bond yields turns out to be a key factor lending support to the non-yielding yellow metal.
That said, the emergence of some US Dollar (USD) buying might hold back traders from placing aggressive bullish bets around the Gold price. Investors might also prefer to wait on the sidelines ahead of the crucial FOMC monetary policy meeting starting this Tuesday, which might provide cues about future rate decisions and provide a fresh directional impetus to the XAU/USD. This, in turn, warrants some caution before positioning for any further intraday appreciating move.
Heading into the key central bank event risk, traders on Tuesday will take cues from the US economic docket – featuring the release of the Conference Board’s Consumer Confidence Index and JOLTS Job Openings data. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the Gold price. Furthermore, the broader risk sentiment should contribute to producing short-term trading opportunities around the safe-haven metal.
Daily Digest Market Movers: Gold price looks to build on positive move amid rising tensions in the Middle East
The ongoing downfall in the US Treasury bond yields, along with the risk of a further escalation of geopolitical tensions in the Middle East, lift the Gold price higher for the second straight day.
The US Treasury lowered its forecast for federal borrowing to $760 billion from a prior estimate of $816 billion and dragged the yield on the benchmark 10-year US government bond closer to 4.0%.
Reports suggest that President Joe Biden will authorize US military action in response to the drone attack by pro-Iranian militias near the Jordan-Syria border that killed three American soldiers.
A direct US confrontation with Iran will adversely impact global Crude Oil supplies, which could eventually trigger a possible inflation shock for the world economy and hinder global growth.
Traders, however, might refrain from placing aggressive directional bets and prefer to move on the sidelines ahead of the critical FOMC monetary policy meeting starting this Tuesday.
The Fed decision on Wednesday and the accompanying policy statement will be scrutinized for cues about the timing of the first rate cut, which will influence the non-yielding yellow metal.
In the meantime, Tuesday’s release of the Conference Board’s Consumer Confidence Index and JOLTS Job Openings data from the US might produce short-term trading opportunities.
Technical Analysis: Gold price could accelerate the appreciating move once $2,040-2,042 barrier is taken out
From a technical perspective, bulls might still wait for a sustained move beyond the $2,040-2,042 supply zone before placing fresh bets and positioning for any further gains. Given that oscillators on the daily chart have just started moving into the positive territory, the Gold price could then climb to the $2,077 resistance zone before aiming to reclaim the $2,100 round-figure mark.
On the flip side, the overnight swing low, around the $2,020-2,019 area, now seems to protect the immediate downside ahead of the $2,012-2,010 zone and the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and expose the 100-day SMA, currently near the $1,978-1,977 region. The Gold price could eventually drop to the very important 200-day SMA, near the $1,964 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar (AUD).
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF
USD
0.03%
0.03%
-0.01%
0.06%
-0.06%
-0.07%
0.05%
EUR
-0.03%
0.00%
-0.04%
0.04%
-0.09%
-0.10%
0.01%
GBP
-0.04%
0.00%
-0.05%
0.03%
-0.09%
-0.10%
0.02%
CAD
0.01%
0.06%
0.05%
0.08%
-0.04%
-0.05%
0.07%
AUD
-0.07%
-0.03%
-0.03%
-0.08%
-0.12%
-0.13%
-0.01%
JPY
0.06%
0.10%
0.11%
0.04%
0.11%
-0.01%
0.11%
NZD
0.07%
0.10%
0.10%
0.06%
0.14%
0.01%
0.11%
CHF
-0.05%
-0.02%
-0.01%
-0.06%
0.02%
-0.10%
-0.10%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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