Gold’s Future Value: In the face of a weaker USD, XAU/USD is close to its three-week high of $1,700.

Oct 4, 2022
VOT Research Desk

Key Insights and Analysis

Gold rallies to a three-week high on Tuesday as it gains significant follow-through traction.

The USD is heavily impacted by falling US bond yields, which also provides the metal with support.

Despite the fact that hawkish Fed expectations could limit gains, bulls shrug off the risk-on impulse.

Gold is building on its recovery from the lowest level since April 2020 and extending the momentum of its overnight breakout through the $1,680-$1,685 supply zone. During the first half of Tuesday’s European session, the XAU/USD pair reaches a three-week high around $1,710 thanks to a strong follow-through positive move.

The US dollar continues to fall from a two-decade high it reached last week and proves to be a major driver of commodity flows in dollars. The willingness of the Bank of England to purchase long-dated gilts worth up to £5 billion keeps the dollar under pressure and keeps bond yields in the United States below their multi-year peak.

In addition, the safe-haven gold is supported by growing concerns about a deeper economic downturn in the US and Europe. The disappointing US data released on Monday revealed that manufacturing activity grew marginally in September, at the slowest rate in nearly two and a half years, adding fuel to the concerns.

This lessens the general bullish sentiment regarding gold and, to a greater extent, helps to offset the risk-averse mood. However, any further gains for the non-yielding yellow metal may be limited for the time being due to the possibility of a more aggressive policy tightening by major central banks.

Market participants are now looking forward to Friday’s release of US monthly employment details. The well-known NFP report will have a significant impact on how the Fed will proceed with future rate hikes. Investors should be able to determine the next phase of a directional move for gold and the dollar as a result of this.

In the meantime, data on factory orders and JOLTS job openings are on Tuesday’s US economic docket. The USD demand and the XAU/USD will be fueled by this, as well as speeches by FOMC members and US bond yields. When looking for gold-related short-term opportunities, traders will also take their cues from the overall risk sentiment.

Technical levels

XAU/USD