Gold price advances to over one-week high, seems poised to appreciate further

• Gold price reverses an Asian session dip and climbs to over a one-week top on Monday. 
• Geopolitical risks and bets that the Fed will cut rates continue to underpin the XAU/USD. 
• Odds for a less aggressive Fed easing boost the USD and might cap gains for the commodity. 

Gold price (XAU/USD) turns positive for the third straight day on Monday and climbs to the $2,667 area, or over a one-week top during the early part of the European session on Monday. Expectations that the Federal Reserve (Fed) will continue cutting interest rates amid a favorable inflation outlook turn out to be a key factor driving flows towards the non-yielding yellow metal. Apart from this, escalating geopolitical tensions in the Middle East lend additional support to the safe-haven bullion. 

Meanwhile, the US Treasury bond yields and the US Dollar (USD) remain elevated amid rising bets for a less aggressive policy easing by the US central bank. This, along with a generally positive risk tone and the optimism over China's pledge to increase debt to revive its economy, might keep a lid on any further gains for the safe-haven Gold price. This, in turn, warrants some caution for bullish traders and before positioning for any further appreciating move amid a partial holiday in the US. 

Daily Digest Market Movers: Gold price benefits from bets for more Fed rate cuts and geopolitical risks

• The US Bureau of Labor Statistics reported that the headline Producer Price Index (PPI) for final demand rose 1.8% and the core gauge climbed 2.8% on a yearly basis in September.
• The readings were slightly higher than consensus estimates, though pointed to a deceleration in price rise, which should allow the Federal Reserve to continue cutting interest rates.
• According to the CME Group's FedWatch Tool, the markets are currently pricing in over a 90% chance that the Fed will lower borrowing costs by 25 basis points in November. 
• The yield on the benchmark 10-year US Government bond, however, holds steady above the 4% threshold amid diminishing odds for a more aggressive policy easing by the Fed.
• This, in turn, assists the US Dollar to stand tall near a two-month peak and turns out to be a key factor that prompts fresh selling around the Gold price on the first day of a new week. 
• Government data released over the weekend showed that China's headline Consumer Price Index was flat in September and the yearly rate stood at 0.4%, missing market expectations. 
• This, along with the lack of numerical details for China's fiscal stimulus and escalating geopolitical tensions in the Middle East, should offer support to the safe-haven precious metal.
• The US market is closed on Monday for the Columbus Day holiday, leaving the XAU/USD at the mercy of the USD price dynamics and fresh geopolitical developments. 

Technical Outlook: Gold price move beyond the $2,662 barrier sets the stage for a further appreciating move

Any subsequent slide is likely to find some support near the $2,632-2,630 region, below which the Gold price could accelerate the fall towards the $2,600 round-figure mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pace the way for some meaningful downfall. The XAU/USD might then drop to the next relevant support near the $2,560 zone and extend the decline towards the $2,535-2,530 region en route to the $2,500 psychological mark.

Meanwhile, positive oscillators on the daily chart favor bullish traders. That said, it will still be prudent to wait for some follow-through buying beyond the $2,660-2,662 horizontal resistance before positioning a further near-term appreciating move. The subsequent move up has the potential to lift the Gold price to an all-time high, around the $2,685-2,686 region touched in September. This is closely followed by the $2,700 round-figure mark, which if cleared decisively will set the stage for an extension of a well-established multi-month-old uptrend.

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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