After the international gold price fell below $3,900 per ounce and hit a new low for the past year, the low price level attracted some bargain hunting, and the lower gold price is also drawing in physical buyers, according to Pepperstone market strategist Wu Dilin.
However, the metal must climb back above $4,000 per ounce before it can ease the recent downward pressure and create room for a more durable technical rebound, Wu said.
For non-yielding gold, a continuously strengthening U.S. dollar index and higher real yields could keep the cost of holding gold elevated, thereby limiting its rebound potential, Wu noted.
At the same time, the relative strength index has approached oversold territory, but the technical picture remains weak, and with Federal Reserve monetary policy as the dominant influencing factor, the international gold price still faces some downside risk.
Where the pressure is coming from
Although Fed rate hikes remain the main risk, Wu believes this is not the only obstacle facing the international gold price. As volatility across the broader financial markets intensifies, precious metals prices are also under significant liquidity pressure.
The sharp decline in U.S. technology stocks has triggered concerns about overinvestment in artificial intelligence infrastructure and the potential returns on related spending. As investors reduce exposure to risk assets, some market participants may be forced to sell gold holdings to meet margin requirements or raise funds, further intensifying selling pressure in the gold market.
In the current environment, safe-haven flows are leaning more toward government bonds, and expectations of falling bond yields may not be enough to support a rise in the international gold price. What is also needed is a easing of market expectations for continued Fed rate hikes and stabilization in overall market liquidity conditions.
The double burden on gold
Overall, the international gold price still faces the dual pressure of Fed rate hike expectations and deleveraging in the U.S. stock market. The outcome of the U.S. midterm elections could influence expectations for future fiscal spending, government deficits and Treasury issuance, thereby affecting bond yields and the dollar's direction.
If a change in congressional control lowers expectations for future fiscal deficits, it could help push down long-term bond yields and provide some support for the international gold price. At the same time, reduced political uncertainty could also strengthen the dollar and limit the upside room for the international gold price.
What to watch in the jobs data
On the U.S. labor market data front, economists expect the U.S. to have added 65,000 jobs in October, up from 29,000 in September. The unemployment rate is expected to remain unchanged at 4.2%.
If this week's U.S. nonfarm payrolls data comes in stronger than expected, especially if accompanied by strong wage pressure, it could reinforce expectations for a December rate hike, thereby supporting the dollar and real bond yields. Conversely, weak jobs data could relieve some pressure on the international gold price.
It is worth noting that if deteriorating U.S. employment conditions trigger another decline in risk assets, the international gold price will remain in a fragile position, because investors will continue to pull money out and reduce leverage.
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