Sunday, September 24, 2023

XAU/USD remains under pressure below $1,940, decline seems supported

Gold prices fell for the second straight day on Tuesday, although there is no continuation.

Optimism regarding further economic stimulus from China continues to weigh on the safe yellow metal.

Expectations that the Federal Reserve will pause its rate hike cycle should help limit the decline.

Gold prices (XAU/USD) moved with a slight bearish bias for the second straight day on Tuesday, albeit with no continuation and staying within last week’s familiar range. XAU/USD is currently just below $1,940, down less than 0.10% on the day, and is being pressured by a combination of factors.

Despite signs of easing in the US labor market, the Federal Reserve (Fed) is expected to hike interest rates for longer. On the other hand, markets continue to assess the possibility of another 25 basis point (bp) gain by the end of the year. This, in turn, continues to support high US Treasury yields, providing some support for the US dollar (USD) and weighing on gold prices, which are not performing well.

Additionally, a positive risk tone, bolstered by hopes that China will announce more stimulus measures to support a slowing economic recovery, is reducing safe-haven demand for gold. It is worth remembering that China increased local dollar liquidity last week and eased some mortgage rules to support the struggling real estate sector. In addition, Chinese company Country Garden Holdings reached an agreement with creditors to defer some payments due on Saturday.

Separately, the National Development and Reform Commission (NDRC), China’s top economic planning agency, announced on Monday that it would set up a dedicated department to bolster the country’s ailing private sector. This further boosts investor confidence and continues to support the underlying bullish sentiment in equity markets. However, the decline in gold prices seems to be supported by expectations that the Fed is nearing the end of its rate hike cycle.

In fact, the US Federal Reserve is expected to leave interest rates unchanged at its September monetary policy meeting. These expectations were bolstered by mixed US payroll data. Better-than-expected NFP headline data was offset by a downward revision of last month’s data and an unexpected rise in the unemployment rate. In addition, average hourly earnings fell from 4.4% per year to 4.3%, which indicates a slight deterioration in the labor market.

This leaves less room for the Fed to raise rates further, which in turn discourages dollar bulls from opening new positions and provides a tailwind for dollar-denominated gold prices. Therefore, it is prudent to wait for any strong follow-up selling before confirming that the recent recovery from the $1,885 area, or the lowest since March 13th, has ended and aggressively short positions near XAU/USD to increase open.

World Nation News Desk
World Nation News Desk
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