Gold prices (XAU/USD) rose for the third day in a row on Monday, reaching the $2,667 level, marking the highest point in over a week during the early European trading session. The primary factor behind this upward trend seems to be expectations that the Federal Reserve will continue to lower interest rates. A favourable inflation outlook supports this view, driving investors towards non-yielding assets like gold. Additionally, escalating geopolitical tensions in the Middle East add to the demand for gold, which is traditionally seen as a safe-haven asset in uncertain times.
On the other hand, US Treasury bond yields and the US Dollar remain strong. This is due to increasing speculation that the Federal Reserve may adopt a less aggressive stance when it comes to cutting interest rates. The rising yields, coupled with a generally positive market sentiment and optimism surrounding China’s efforts to boost its economy by increasing debt, could limit further gains for gold. This situation requires cautious optimism for bullish traders, especially since the US is observing a partial holiday.
In related news, the US Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand rose by 1.8% annually in September, with the core PPI climbing by 2.8%. Though these figures slightly surpassed market expectations, they also pointed to a deceleration in the rate of price increases. This should give the Federal Reserve room to continue easing interest rates. According to the CME Group’s FedWatch Tool, there is now a 90% chance that the Fed will reduce borrowing costs by 25 basis points in November. Despite this, the yield on the benchmark 10-year US Government bond remains above the 4% mark, reflecting diminishing expectations of a more aggressive policy easing. This strength in the US Dollar, which sits near a two-month peak, contributes to fresh selling pressure on gold as the new week begins.
Over the weekend, data from China showed that its Consumer Price Index (CPI) for September was flat, with an annual growth rate of just 0.4%, falling short of market forecasts. This, combined with the lack of detailed information on China’s fiscal stimulus plans and the ongoing geopolitical unrest in the Middle East, should continue to support gold’s safe-haven appeal. However, with the US market closed on Monday due to the Columbus Day holiday, gold prices will likely remain influenced by movements in the US Dollar and any new geopolitical developments.
On the technical front, gold’s recent climb beyond the $2,662 level opens the door for further gains. Any dip in price may find support around the $2,632 to $2,630 range. A sustained break below this level could trigger more significant declines, with the next target being the $2,600 mark. If this is breached, bearish traders may push the price towards the $2,560 zone, and eventually to the $2,530 region, with the psychological level of $2,500 in sight.
Despite the potential for a decline, technical indicators on the daily chart still favour bullish traders. However, it would be wise to wait for further confirmation of a sustained move above the $2,660 to $2,662 resistance level before positioning for additional gains in the near term. Should the upward momentum continue, the gold price could reach the all-time high of around $2,685 to $2,686, last seen in September. This could be followed by a move towards the $2,700 level, which if surpassed, would confirm the continuation of the long-standing upward trend.
London-listed company KEFI Gold and Copper plc (LON:KEFI) is an exploration and development company focused on gold and copper deposits in the highly prospective Arabian-Nubian Shield. The Company operates in Ethiopia and Saudi Arabia with projects including Tulu Kapi project, Jibal Qutman EL and Hawiah.
