Gold falls for the fourth time What's happening in the markets?
On Tuesday, precious metals markets witnessed a new wave of decline in gold prices, the fourth in a row, in light of complex economic conditions controlled by several factors, most notably the rise of the US dollar and the decline in expectations of a US interest rate cut next month.
Implications of the rising dollar
Spot gold fell more than 1% to $4,000 an ounce, as the US dollar index (DXY) stabilized at high levels after a sharp jump in the previous session.
The rising greenback increases the cost of buying gold for holders of other currencies, putting downward pressure on demand for the yellow metal.
Impact of US economic data
A deal to end the longest government shutdown in U.S. history drew attention to the absence of official economic data during the period, diminishing expectations for an additional interest rate cut by the Federal Reserve in December.
On Monday, comments by Philip Jefferson, the Fed's vice chairman, emphasized the need for central banks to proceed slowly with any future rate cuts, prompting markets to lower their expectations for a cut next month.
Interest Rate Cut Expectations Fall
The latest data indicate a sharp decline in expectations of a rate cut next month, with the odds falling from around 90% before the September decision to only around 42% currently.
This is one of the most significant negative influences on investors' appetite for gold as a safe-haven investment.
A look at upcoming data
Investors are awaiting the release of important US economic data this week, most notably the September nonfarm payrolls report, due out on Thursday, which will provide important clues about the health of the world's largest economy and further clarity on future central bank policies.
Supportive factors in the medium and long term
Despite the current pressures, gold remains supported by several structural factors, most notably:
- Geopolitical uncertainty.
- Concerns about the sustainability of US debt.
- Trends to reduce reliance on the dollar in international transactions.
- Central banks continue to buy the yellow metal at a strong pace.
Technical levels and future direction
Technically speaking, gold has reached key short-term support levels, representing the uptrend line on the four-hour timeframe.
This could be a pivotal level that could spur buying again, especially as we await new economic data that could support the yellow metal's return to its upward trajectory.
In the end, while short-term factors are currently tilted against gold, long-term structural factors remain supportive, making it retain its safe-haven appeal in investor portfolios
