The price ofor starts the week in the green, supported by the uncertainty surrounding the American presidential election. While geopolitical tensions in Middle East persist, gold, a traditional financial refuge, could benefit from this increased security demand. However, the recent rise in bond yields in the United States and the strength of American dollar could slow down its rise.
A market awaiting the electoral outcome
Investors are preparing for a busy week, marked by the uncertain outcome of the US presidential election and the imminent decision of the US Federal Reserve (Fed). Speculation is rife about a possible 25 basis point rate cut by the Fed this Thursday, which could directly influence the value of gold in a tense economic climate.
Also read: Gold towards a new price record this week?
An upward trend tempered by the strength of the dollar
At the start of the week, the price ofor remains in a positive dynamic, stimulated by geopolitical concerns and electoral uncertainty. Although this context favors the precious metal, the renewed demand for the dollar and high bond yields limit potential gains. Indeed, higher interest rates reduce the attractiveness of gold, which does not generate returns, compared to assets offering interest income.
Focus on the Fed and investment flows
Commerzbank analysts anticipate an increase in flows to ETF dedicated to gold, stimulated by forecasts of falling interest rates and the high level of fiscal deficits. However, investment demand could be sensitive to the outcome of the American elections. Gold purchases by central banks are also expected to remain significant this year, although without reaching the peaks of the last two years. As for jewelry demand, it could be higher than expected, although slightly below last year's levels.
The impact of monetary policy on the price of gold
The evolution of interest rate considerably influences the price of gold. When rates rise, this increases the attractiveness of dollar investments and weighs on the price of gold, as investors then favor assets offering returns. In a context of low interest rates, gold becomes a preferred choice as a safe haven against a less profitable currency.
Technical analysis: lasting support for gold?
From a technical perspective, gold prices appear to maintain a bullish outlook, with strong support above the exponential moving average (EMA) at 100 days. Additionally, the 14-day Relative Strength Index (RSI) is positioned above 50, which could signal continued support levels. If the price continues to move above the symbolic mark of $2,790-2,800, it could target $2,850. Conversely, a fall below $2,715 could lead to a correction towards $2,600.
FAQ: Understanding the influence of interest rates on currencies and gold
What are interest rates?
THE interest rate are the amounts billed by financial institutions to borrowers or paid to savers. Set by central banks, they generally aim to stabilize prices by controlling inflation. When it falls below targets, the central bank can lower rates to stimulate the economy.
How do interest rates influence the price of gold?
Higher rates often weigh on gold prices due to the increased appeal of income-producing assets. When rates rise, the dollar becomes stronger, thereby reducing the price of gold.
What is the Fed Funds rate?
The Fed Funds rate is the United States interbank rate, often mentioned in Fed decisions. It influences the behavior of financial markets which anticipate future monetary decisions by the Fed, closely monitored by investors through tools such as CME FedWatch.
The outcome of this week will be decisive for gold, between the American electoral choices and the decisions of the Fed, in a global economic climate already marked by numerous challenges.
