XAU/USD Daily Chart Analysis

The price of gold has been on a downward trajectory for three consecutive days, hitting a new low for the week on Wednesday, and settling in the region of $1,975 during the initial half of the trading day. This decline is attributed to a combination of factors including diminishing demand for safe-haven assets and expectations of a hawkish stance from the Federal Reserve (Fed). Despite these pressures, the gold market saw a slight recovery from its daily low, as traders remained cautious ahead of the upcoming Federal Reserve monetary policy announcement.

The Federal Reserve is expected to maintain its current monetary policy stance, with traders eagerly awaiting the release of significant US economic data, including the ADP report on private-sector employment, the ISM Manufacturing PMI, and JOLTS Job Openings, for further market direction. While there hasn’t been strong follow-through in selling, traders are advised to proceed with caution, particularly with the bearish sentiment. On the flip side, concerns over China’s economic stability in the fourth quarter provide some support for gold prices, offering a safety net for the precious metal.

Despite a robust performance in the previous month, gold prices have started the new month on a weaker note. The reduced risk premium from the Israel-Hamas conflict, as no additional Arab powers have engaged in the conflict and Hamas’s commitment to releasing foreign hostages in the coming days, have contributed to this trend. However, the World Gold Council (WGC) highlighted that high gold prices might suppress demand in India, potentially leading to the lowest purchases in three years during the festive season. Additionally, the WGC noted a decrease in central bank gold buying, a slight softening in jewelry demand due to high prices, and a mixed investment picture.

The US dollar has maintained a positive bias, fueled by expectations of potential hawkish surprises from the Federal Reserve’s two-day FOMC monetary policy meeting. The central bank is anticipated to keep rates steady at a 22-year high, with the US’s economic resilience and persistent inflation likely to support a hawkish stance and the possibility of future rate hikes. The yield on the 10-year US government bond, hovering close to a 16-year high at 5%, further supports the US dollar. In contrast, a Caixin-sponsored survey revealed contraction in China’s manufacturing sector business activity for October, indicating that stimulus efforts have only provided limited support for China’s fragile economic recovery, which could potentially lend support to gold prices.

On the technical front, gold prices exhibit a bullish trend, currently range-trading around the $1,991.50 level. Despite this, there is potential for a pullback, with the market potentially retesting the $1,960 level. Gold is trading above both the 200-day and 50-day moving averages, indicating a bullish market range. There are two potential scenarios for gold prices:

A decline from the current level, testing support at $1,987, with potential further downside to $1,983. If bearish momentum continues, the next support levels could be $1,977 and $1,972, with $1,963 serving as a major support level.
2. An increase from the current level, challenging resistance at $1,997, with the main resistance level at $2,001. Additional resistance levels to watch include $2,003, $2,007, and $2,013, which would act as major resistance.

In the short term, the market’s momentum appears bullish, though traders should be wary of potential ranging between the $1,960 and $2,025 levels in the days to come.