Gold price remains on the defensive below $2,748-2,750 hurdle amid positive risk tone

• Gold price attracts some dip-buying on Monday and draws support from a combination of factors. 
• Middle East tensions, US election jitters and a modest USD pullback seem to benefit the XAU/USD. 
• Bets for smaller Fed rate cuts and rising US bond yields might cap the upside for the precious metal.

Gold price (XAU/USD) struggles to capitalize on its intraday bounce and remains below the $2,748-2,750 supply zone through the early part of the European session on Monday. Safe-haven demand stemming from Middle East tensions and US election jitters continues to act as a tailwind for the precious metal. Apart from this, a modest US Dollar (USD) pullback from its highest level since July 30 turns out to be another factor lending some support to the commodity. 

That said, the prospects for smaller rate cuts by the Federal Reserve (Fed) and deficit-spending concerns after the US election remain supportive of elevated US Treasury bond yields. This, along with a generally positive risk tone, keeps a lid on the non-yielding Gold price. Traders also seem reluctant ahead of this week's key US macro data – the Advance Q3 GDP print, the Personal Consumption Expenditures (PCE) Price Index and the Nonfarm Payrolls (NFP) report. 

Daily Digest Market Movers: Gold price lacks bullish conviction amid bets for smaller Fed rate cuts

• The US Dollar added to its recent strong gains registered over the past four weeks and climbed to its highest level since July 30 amid bets for a less aggressive policy easing by the Federal Reserve. 
• According to the CME Group's FedWatch Tool, the markets have nearly fully priced in the possibility of a regular 25 basis points rate cut by the US central bank at its November policy meeting. 
• The latest poll indicates a tight race between Vice President Kamala Harris and the Republican nominee Donald Trump amid deficit-spending concerns after the November 5 US presidential election.
• Moreover, the US macro releases on Friday added to a string of recent upbeat data and suggested that the economy remains on strong footing, validating market bets for smaller Fed rate cuts.
• The US Census Bureau reported that Durable Goods Orders in the US declined by 0.8% in September, lower than the 1% fall expected, while new orders excluding transportation increased by 0.4%. 
• Adding to this, the University of Michigan's Consumer Sentiment Index reached a six-month high of 70.5 in October, better than both the preliminary result and the previous month's reading. 
• The yield on the benchmark 10-year US government bond stands firm near a three-month high touched last week, which is seen benefiting the USD and weighing on the non-yielding precious metal. 
• Iran on Saturday indicated that it would not retaliate against Israeli strikes on military targets across its territory if a deal is reached for a ceasefire agreement in the Gaza Strip and Lebanon. 
• China’s Vice Minister of Finance, Liao Min, said on Monday that the country will step up countercyclical adjustments of its macro policies to bolster economic recovery in the fourth quarter.

Technical Outlook: Gold price awaits breakout through one-week-old range before the next leg of a directional move

From a technical perspective, last week's repeated failures to find acceptance or build on momentum beyond the $2,748-2,750 area warrant some caution for bullish traders. Moreover, the recent range-bound price action witnessed over the past week or so points to indecision among traders over the next leg of a directional move. Hence, it will be prudent to wait for a sustained strength beyond the said barrier or a convincing break below the short-term trading range support near the $2,720-2,715 zone, before positioning for a firm near-term trajectory. 

Meanwhile, some follow-through buying beyond the $2,748-2,750 region should allow the Gold price to retest the all-time peak, around the $2,658-2,659 area touched earlier this month. The subsequent move up could lift the XAU/USD towards the $2,770 zone, representing a nearly four-month-old ascending trend-line resistance, en route to the $2,800 round-figure mark.

On the flip side, weakness below the $2,720-2,715 region is likely to find decent support near the $2,700 mark, which if broken decisively should pave the way for deeper losses. The gold price might then accelerate the corrective fall towards intermediate support near the $2,675 area and eventually drop to the $2,657-2,655 horizontal support.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

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.

What are the key assets to track to understand risk sentiment dynamics?

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.

Which currencies strengthen when sentiment is "risk-on"?

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.

Which currencies strengthen when sentiment is "risk-off"?

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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