Gold price keeps the red below $2,740, remains confined in multi-day-old trading range

• Gold price ticks lower on Wednesday as the USD surges to a four-month high.
• The Trump trade is back in play following the initial US election exit poll results. 
• Geopolitical tensions lend support to the safe-haven XAU/USD and limit losses.

Gold price (XAU/USD) extends its sideways consolidative price move and remains confined in a familiar range below the $2,750 level heading into the European session on Wednesday. The US Dollar (USD) trims a part of its strong intraday gains to the highest level since early July as bulls opt to take some profits off the table amid a modest pullback in the US Treasury bond yields. This, along with persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, offers some support to the safe-haven precious metal.

The upside for the Gold price, however, seems capped amid the underlying strong bullish sentiment surrounding the USD, bolstered by the odds of a victory for Republican Donald Trump in the US presidential election. Furthermore, deficit-spending concerns, along with bets for a less aggressive easing by the Federal Reserve (Fed), might continue to push the US bond yields and validate the positive outlook for the buck. This, in turn, suggests that any intraday positive move in the XAU/USD could be seen as a selling opportunity and remain capped.

Daily Digest Market Movers: Gold price seems vulnerable as Trump trade might continue to boost USD

• The US Dollar surged to a nearly four-month top in reaction to the US election exit polls, which suggest that the vote is moving in favor of former President Donald Trump.
• Georgia, a key swing state, was among the first of those with available exit polls, showing a Trump victory, and early exit poll results in Wisconsin also point to a Trump win.
• Preliminary results of the exit poll from Pennsylvania, one of the most closely watched swing states, appear in favor of Vice President Kamala Harris, according to CBC News.
• North Carolina exit polls show a close race while Nebraska District 2 initial results show Harris leading. CBC News called Indiana, Kentucky and West Virginia for Trump.
• Rising odds of Trump winning the election fuel speculation about the launch of potentially inflation-generating tariffs and push the US Treasury bond yields sharply higher. 
• The yield on the benchmark 10-year US government bond surges over 15 points, or over 3.5% intraday and climbs to 4.44%, hitting its highest level since July 2.
• The US election results clear out a major point of uncertainty for markets, triggering a fresh wave of risk-on trade and further contributing to capping the safe-haven Gold price.
• The downside for the XAU/USD, however, is cushioned as traders remain cautious in the wake of the expected spike in volatility across the global financial markets.
• Iran's plans for a retaliatory strike against Israel’s attack on its territory on October 26 continue to fuel worries about the risk of a further escalation of tensions in the Middle East.

Technical Outlook: Gold price could accelerate the downfall once $2,720-2,715 support is broken decisively

From a technical perspective, the $2,725-2,720 area might continue to act as immediate strong support, below which the Gold price could accelerate the slide towards testing sub-$2,700 levels. The latter represents the lower boundary of a short-term ascending trend channel extending from late July. A convincing break below should pave the way for an extension of the recent corrective pullback from the all-time peak touched last week and drag the XAU/USD toward the next relevant support near the $2,675 zone en route to the $2,657-2,655 region.

On the flip side, the $2,748-2,750 area now seems to have emerged as an immediate hurdle. The subsequent move up could lift the Gold price to the ascending trend-channel hurdle, currently pegged near the $2,780-2,785 region. This is closely followed by the $2,800 mark, which is likely to act as a key pivotal point. A sustained strength beyond will set the stage for the resumption of the prior well-established uptrend.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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