• Gold price scales higher for the second straight day and climbs to over a one-week high on Monday.
  • Escalating geopolitical tensions in the Middle East provide a strong lift to the safe-haven XAU/USD.
  • Hawkish Fed expectations, elevated US bond yields underpin the USD and cap gains for the metal.

Gold price (XAU/USD) witnessed a dramatic intraday turnaround on Friday and rallied over 1.3% from the $1,810 area, or its lowest level since March 8 touched in the aftermath of the United States (US) monthly jobs data. The US Nonfarm Payrolls (NFP) report, meanwhile, reaffirmed bets for at least one more rate hike by the Federal Reserve (Fed) in 2023 and continued weighing on the precious metal.

Additional details of the report, however, revealed that wage growth remained moderate during the reported month and eased inflationary concerns, which could allow the Fed to soften its hawkish stance. This, in turn, dragged the US Dollar (USD) lower for the third successive day, which prompted aggressive short-covering around the Gold price and allowed it to snap a nine-day losing streak.

Adding to this, escalating geopolitical tensions in the Middle East assisted the XAU/USD in gaining some follow-through traction on the first day of a new week and climb to over a one-week top during the Asian session. The Gold price, however, struggles to capitalize on the move beyond the $1,855 area as traders now look to this week’s release of the FOMC meeting minutes and the US consumer inflation figures.

Daily Digest Market Movers: Gold price benefits from escalating geopolitical tensions

  • The US NFP report showed on last Friday that the economy added 336K jobs in September, much higher than anticipated, and the previous month’s reading was also revised higher to 227K from 187K.
  • Average Hourly Earnings rose by 0.2% during the reported month, matching a similar gain in August, and advanced by 4.2% over the 12 months through September as compared to the 4.3% previous.
  • The markets are still pricing in the possibility of at least one more rate hike by the Federal Reserve (Fed) in 2023, which remains supportive of elevated US bond yields and underpins the US Dollar.
  • Geopolitical tensions trigger a fresh wave of the global risk-aversion sentiment, assisting the safe-haven Gold price to gain some follow-through traction and climb to over a one-week high on Monday.
  • Israel launched airstrikes on Gaza and declared war against the Palestinian enclave of Gaza on Sunday in response to an unprecedented attack by the Hamas militant group in Gaza on Israeli towns.
  • The development raises the risk of a wider Middle East conflict and boosts demand for traditional safe-haven assets, which, in turn, is seen benefitting the Gold price.
  • Market participants now look to this week’s release of the FOMC meeting minutes and the latest US consumer inflation figures for fresh cues about the Fed’s future rate-hike path.

Technical Analysis: Gold price is likely to attract fresh sellers at higher levels

The strong move-up witnessed over the past two trading sessions might still be categorized as a technical bounce on the back of the oversold Relative Strength Index (RSI) on the daily chart. The occurrence of a death-cross, with the 50-day Simple Moving Average (SMA) falling below the very important 200-day SMA for the first time since July 2022, suggests that the path of least resistance for the Gold price is still to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

From current levels, momentum beyond the daily peak, around the $1,855-1,856 region, is likely to confront stiff resistance near the $1,865 zone. Some follow-through buying, however, has the potential to lift the Gold price further towards the next relevant hurdle near the $1,885 area. This is closely followed by the $1,900 round figure, which should now act as a key pivotal point for short-term traders. On the flip side, the $1,835-1,834 region now seems to protect the immediate downside, below which the XAU/USD could slide to the $1,820 support en route to the multi-month low, around the $1,810 zone.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

USD   0.13% 0.17% -0.02% 0.26% 0.01% 0.03% 0.14%
EUR -0.15%   0.04% -0.15% 0.11% -0.14% -0.11% 0.01%
GBP -0.18% -0.04%   -0.19% 0.04% -0.17% -0.17% -0.03%
CAD 0.02% 0.15% 0.19%   0.28% 0.02% 0.04% 0.16%
AUD -0.26% -0.08% -0.05% -0.23%   -0.22% -0.22% -0.07%
JPY -0.01% 0.11% 0.16% 0.00% 0.21%   -0.04% 0.14%
NZD -0.01% 0.14% 0.17% -0.02% 0.22% 0.01%   0.13%
CHF -0.16% 0.00% 0.03% -0.15% 0.08% -0.15% -0.13%  

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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