Gold price flat lines above $2,730 level, focus remains glued to US presidential election

05 Nov 2024, 04:06 by Haresh Menghani · FXStreet

Gold price slides to a one-week low amid some repositioning trades ahead of the US election.
Fed rate cut bets, declining US bond yields and subdued USD demand help limit the downside.
Middle East woes also offer support to the XAU/USD and contribute to the modest bounce.

Gold price (XAU/USD) attracts some dip-buying following an intraday slide to over a one-week low on Tuesday and currently trades around the $2,735 area, nearly unchanged for the day heading into the European session. Safe-haven demand stemming from the closely contested US presidential election and the risk of a further escalation of geopolitical tensions in the Middle East offers some support to the precious metal.

Meanwhile, the unwinding of the "Trump trade", along with bets the Federal Reserve (Fed) will lower interest rates further amid signs of a cooling US labor market, continue to drag the US Treasury bond yields lower across the board. This, in turn, fails to assist the US Dollar (USD) to build on the overnight bounce from a two-week low and turns out to be another factor acting as a tailwind for the non-yielding Gold price.

Daily Digest Market Movers: Gold price attract haven flows amid US election uncertainty, Middle East tensions

The recent opinion polls indicated that Democratic candidate Kamala Harris and Republican Donald Trump are locked in a tight race to the White House, fueling political uncertainty.
The winning odds of former President Donald Trump have fallen significantly, prompting some unwinding of the "Trump Trade" and dragging the US Treasury bond yields lower.
The yield on the benchmark 10-year US government bond and the two-year Treasury note registered their biggest one-day decline in two months and nearly three weeks, respectively.
A part of the decline in the US bond yields could further be attributed to rising bets for more interest rate cuts by the Federal Reserve, bolstered by signs of a weakening US labor market.
Iran signaled that it would deliver a harsh response to Israel's late-October strikes on its territory, while the US directly warned Iran against launching another attack against its ally Israel.
Tuesday's US economic docket features the release of the ISM Services PMI later during the US session, although it might do little to provide any impetus ahead of the US presidential election.

Technical Outlook: Gold price seems vulnerable after last week's rejection near ascending channel resistance

From a technical perspective, last week's failure near the top boundary of an ascending channel extending from late July and the subsequent pullback from the all-time peak could be seen as a sign of bullish exhaustion. However, mixed oscillators on the daily chart warrant some caution before positioning for further losses. Hence, any further decline is more likely to find some support near the $2,720-2,715 horizontal zone, below which the Gold price could aim to challenge the trend-channel support, currently pegged near the $2,690 region. Some follow-through selling would mark a bearish breakdown and pave the way for some meaningful corrective fall in the near term.

On the flip side, the $2,748-2,750 area now seems to act as an immediate hurdle ahead of the $2,790 region, or the record high touched last Thursday. This is followed by the $2,800 round figure and the ascending channel resistance, around the $2,820 zone. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and allow the Gold price to prolong its recent well-established uptrend.

Economic Indicator

ISM Services PMI

The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector, which makes up most of the economy. The indicator is obtained from a survey of supply executives across the US based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that services sector activity is generally declining, which is seen as bearish for USD.

Why it matters to traders?

The Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A print above 50 shows expansion in the service sector’s economic activity. Stronger-than-expected readings usually help the USD gather strength against its rivals. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are also watched closely by investors as they provide useful insights regarding the state of the labour market and inflation.

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