Spot gold recently reached a record high of $2790.11 per ounce before experiencing a sharp decline, dipping below the key $2780 threshold and then recovering slightly above this level. Various factors have influenced this fluctuation, including the Federal Reserve's cautious stance on rate cuts, easing tensions in the Middle East, and rising U.S. Treasury yields bolstering the dollar. This article examines these factors and their impact on the gold market.
Market expectations for the Federal Reserve's future rate cuts have become more conservative, affecting gold prices. Economic data has shown resilience, tempering optimism about Fed policy. The upcoming U.S. Personal Consumption Expenditure (PCE) price index figures are anticipated by analysts, with predictions of a 0.2% month-on-month increase and core PCE rising by 0.3%, indicating a potential slowdown in monetary easing by the Fed, thus pressuring gold prices.
Moreover, the recent rise in U.S. Treasury yields has dampened the safe-haven appeal of gold. The 10-year Treasury yield remains relatively high, prompting concerns over the U.S. fiscal deficit and increasing bond market attractiveness, contributing to gold's downward pressure. The anticipated stability in U.S. initial jobless claims could further strengthen the dollar, adding pressure on gold.
In addition to economic factors, the Middle East's calming tensions have significantly influenced gold prices. Talks of a potential ceasefire between Lebanon and Israel, encouraged by various diplomats, could decrease market risk aversion, reducing gold's support as a safe-haven asset.
From a technical perspective, gold remains in an upward channel, but the Relative Strength Index (RSI) indicates overbought conditions, suggesting a higher risk of short-term price corrections. If gold aims to resume its upward trend, it must breach the $2800 resistance level. Failure to do so could create a barrier to further price increases. The support level is at $2750-$2748, with further declines potentially testing levels at $2732-$2730 and $2715. A break below these could see gold hitting the psychological mark of $2700, extending the correction to $2675, and possibly $2657-$2655.
Looking ahead, investors are closely watching the upcoming U.S. PCE inflation data, a critical measure for the Fed. If the data comes in lower than expected, it could weaken the dollar and lead to a rebound in gold. Conversely, strong PCE figures might bolster the dollar further, exerting additional pressure on gold. The data on initial jobless claims for the week ending October 26 is also worth noting.
In summary, gold is currently entangled by multiple factors, maintaining a probability of short-term fluctuations. Fed policy expectations, easing Middle East tensions, and U.S. economic data will be core variables affecting gold prices. Although gold's upward channel remains intact, technical indicators suggest caution against potential corrections. The support area has shifted to the $2750 level, and stability here may attract buying interest. However, without breaking the $2800 mark, gold's upward potential is limited, advising a flexible trading approach.
