- Gold gains as investors seek refuge amid election-related uncertainty and global tension.
- US Treasury yields steady; rising real yields slightly cap Gold’s advance.
- Analysts warn prolonged election result could further boost Gold prices in the coming days.
Gold prices increased during the New York session as Americans kept going to the polls amidst one of the closest of the US presidential elections this century. Risk appetite has improved, yet the golden metal post gains of over 0.22% due to uncertainty linked to election jitters and the Middle East.
The XAU/USD traded at $2,741 after bouncing off daily lows of $2,724. US Treasury bond yields had pared some of their gains, particularly the 10-year benchmark note, which remained unchanged at 4.289%. US real yields, which inversely correlate against Bullion, are up five basis points to 2.00%, capping the advance of the non-yielding metal.
Market players continued to cling to safe-haven assets outside of the Greenback amidst political uncertainty on the US election results. Gold, the Yen, and the Swiss Franc remain on the front foot, with most polls showing Democratic candidate Kamala Harris and Republican Donald Trump too close to call.
Commerzbank analysts wrote in a note, “Should the election result be uncertain for days or even weeks, Gold would benefit from the resulting uncertainty.”
A Reuters poll on Monday showed concerns that the US could face a similar election crisis like the one that followed Trump’s 2020 election defeat.
By Thursday, the Federal Reserve (Fed) is expected to lower borrowing costs by 25 basis points to the 4.50%-4.75% range.
The US economic schedule revealed that the Balance of Trade deficit widened in September. Following that data, US business activity showed mixed signs. S&P Global reported a dip in October’s service activity, while the Institute for Supply Management’s (ISM) Services PMI showed improvement for the same period.
Daily Digest Market Movers: Gold price consolidates amid US presidential election
- The US Bureau of Economic Analysis reported that the trade deficit widened in September to $-84.4 billion, up from a revised $-70.8 billion and slightly exceeding economists’ forecast of $-84.1 billion.
- The US S&P Global Services PMI for October came in at 55.0, below the forecast of 55.3 and down from September’s 55.2.
- The ISM Services PMI for October rose to 56, up from 54.9 in September and surpassing expectations for a deceleration to 53.8.
- The Federal Open Market Committee (FOMC) is expected to implement a 25 bps rate cut on November 7.
- Data from the Chicago Board of Trade, based on the December fed funds rate futures contract, indicates that investors estimate 49 basis points (bps) of Fed easing by the end of the year.
XAU/USD Technical Outlook: Gold price hovers below $2,750
Gold prices are consolidating, with the XAU and USD fluctuating at around $2,724 to $2,749 as traders await the first results of the US election.
Momentum favors buyers, as the uptrend remains intact. The Relative Strength Index (RSI) is bullish and, despite stabilizing, is almost flat.
Gold buyers must reclaim the key psychological level of $2,750 to maintain a bullish momentum. Clearing this level would set the stage for a potential move to the all-time high of $2,790. However, an additional downside is likely if XAU/USD closes below $2,750 on the daily chart.
The initial support is at the October 23 low of $2,708, with further support at $2,700. Beyond that, the next levels are the former resistance turned support at $2,685 — the September 26 swing high — and the 50-day Simple Moving Average (SMA) at $2,628.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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