Gold had the Biggest Gains in 45 Years in 2024
Gold (XAU/USD) has soared to record highs this year, marking its biggest gains in 45 years.
Gold prices have soared to record highs this year—the largest gains in 45 years—on escalating geopolitical tensions in the Middle East and anticipated further interest rate cuts by the US Federal Reserve (Fed). XAU/USD has risen by over 34%, marking the biggest annual increase since 1979.
"[Apart from Middle East geopolitical tensions and US Fed interest rate cuts], topping out of the US Dollar Index (DXY), buying of gold by central banks, especially in emerging markets, fund inflows, and strong consumer demand is driving up the demand for precious metals", said Siddharth Srivastava, Head-ETF Product & Fund Manager, Mirae Asset Investment Managers.
With less than two weeks remaining until the US presidential election on 5 November, investors are bracing for market volatility. Trump's chances of taking over Democratic candidate Vice President Kamala Harris have recently improved on betting websites, though opinion polls suggest the race is still too close to call.
According to Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, "Trump's improving election odds are also tempering market expectations for the Fed to continue easing into 2025, and the possibility of the Fed moving to the sidelines for six months next year can't be ruled out".
Currently, markets are pricing in 41 basis points (bps) of rate cuts for this year, with an additional 100 bps expected next year.
Gold rose above $2,750, reaching another record high during the Asian trading session. Today, traders should focus on the US Existing Home Sales report, due at 2:00 p.m. UTC, which could heighten volatility in USD pairs. If the figures exceed expectations, a stronger US dollar could weigh on gold prices. Conversely, weaker data may support gold by increasing demand for safe-haven assets.
ECB Rate Cut Speculation and the Prospect of Trump's Victory Weigh on the Euro
The euro (EUR/USD) lost 0.17% on Tuesday as the US dollar (USD) continued to strengthen on expectations that the Federal Reserve (Fed) will temper its interest rate cut path while investors positioned ahead of an apparently tight US presidential election.
The EUR/USD downtrend remains intact. Indeed, the pair reached a 2-month low yesterday. Reuters reported that the European Central Bank (ECB) policymakers were debating whether interest rates need to be lowered enough to start stimulating the economy, ending years of economic restriction. While anonymous sources stressed that any consensus was still long off, it marks a significant shift in the policymaking debate. This could ultimately lead to the bank cutting rates sooner and deeper than currently expected.
Meanwhile, a shift in momentum towards a likely Donald Trump presidency has supported the US Dollar Index (DXY) and lifted US Treasury yields to a three-month high on expectations that US rates may remain relatively high for longer than anticipated. That is because Trump's policies, including tariffs and tax cuts, are expected to increase inflation. Overall, the fundamental pressure on EUR/USD remains bearish, with bears aiming to break below 1.07780 and head further down towards 1.06680.
EUR/USD rose somewhat during the Asian and early European trading sessions, but the move currently looks like a minor technical rebound. Today, the macroeconomic calendar doesn't feature any major events that could significantly impact EUR/USD. Investors will likely continue to sell the rallies.
The Market Is Waiting for BOC's Interest Rate Decision
The Canadian dollar (USD/CAD) has renewed 2-month maximums this week. Still, the pair lost 0.11% yesterday ahead of the Bank of Canada's (BOC) interest rate decision.
The BOC will announce an interest rate decision today, and there is a strong consensus among analysts that the bank will deliver a 50-basis-point (bps) cut. This would be the first significant rate reduction of the cycle, which began in June and has so far seen three cuts of 25 bps. The overnight indexed swap (OIS) market is currently pricing in a 90% of a 50-bps cut, with a slight possibility of a 25-bps reduction. Five of the six largest Canadian banks have also forecasted a 50-bps reduction, with the only one indicating uncertainty between a 50- and 25-bps cuts. However, CIBC suggested that a 75-bps decrease is more likely than a 0.25% point reduction.
Meanwhile, US bond yields have recently lost bullish momentum. According to George Davis, Chief Technical Strategist at RBC Capital Markets, the increase in US yields has come to a halt, leading to a broader consolidation in the US dollar (USD). This development can be seen in the USD/CAD pair as the market waits for the BOC meeting to provide guidance on future monetary policy direction.
USD/CAD has been trading in a range during Asian and early European trading sessions. The market is currently awaiting today's BOC interest rate decision at 1:45 p.m. UTC and the following press conference at 2:00 p.m. UTC. Given the current market conditions, the anticipated rate increase seems to have already been priced. Thus, analysts don't anticipate a significant movement in the pair following the event.