Gold Sets a Record High, Driven by Global Factors
Gold (XAU/USD) reached a record high of $2,620 on Friday, supported by global factors. Gold hit a record high on Friday, bolstered by a weakening US dollar (USD). The beginning of the Federal Reserve's monetary easing cycle and expectations for further rate cuts this year could support the non-yielding metal. Additionally, escalating geopolitical tensions in the Middle East may drive safe-haven assets like gold higher. Israel and Hezbollah cross-border attacks escalated on Sunday, and leaders traded hostile threats in an increasingly volatile situation.
Gold has set record highs this year, gaining nearly 28% and outperforming major market indexes. Ryan McIntyre, managing partner at Sprott, commented: ‘The Russia-Ukraine situation was a wake-up call for investors that changed people's thinking about the safety of currencies of other countries’. McIntyre emphasized that there is ‘no froth’ in the gold market right now, describing it as a strong hedge against uncertainty. ‘People want something that's a store of value that's independent of government currencies’, he said, noting that gold's history as a hard currency and its limited physical supply make it a more reliable geopolitical hedge than Bitcoin.
XAU/USD rose today during the Asian and early European trading sessions. Today, S&P Global is releasing its latest Purchasing Managers' Indices (PMI) for several major economies. The eurozone PMI, the U.K. PMI, and the US PMI reports will probably affect the price of gold, but the US report may have the strongest impact. If the US PMI figures show an increase in economic activity and exceed the forecast, XAU/USD may drop below $2,600. Conversely, weaker-than-expected numbers may prolong the bullish trend in gold.
Euro May Correct Downwards
On Friday, the euro (EUR/USD) fluctuated between 1.11350 and 1.11800 against the US dollar (USD) but finished the day essentially unchanged.
After the US Federal Reserve (Fed) started monetary policy easing with a more significant than usual 0.5% reduction on Wednesday, the US Dollar Index (DXY) continued to move higher in a classical ‘sell the rumor, buy the news’ fashion. However, EUR/USD continued to move near a one-month high. The Fed's rate cut ‘appears to have calmed market fears of a US recession.
Our G10 FX team expects a slight rebound for the US dollar over the next three months before easing again on a 6- and 12-month view’, Goldman Sachs analysts said. Indeed, the market expects the Fed to continue lowering the base rate for at least a year. The majority of economists polled by Reuters anticipate two more 25-basis-point (bps) rate cuts at the Fed's final two meetings this year. Interest rate swaps market data implies more than 100 bps worth of cuts in 2025.
Meanwhile, the European Central Bank (ECB) has maintained a more cautious approach. Currently, the markets don't expect the ECB to deliver a rate cut in October but have fully priced in a reduction in December. Given that the eurozone economy is much closer to a recession than the US, the chances of more rate cuts by the ECB may increase soon. Overall, EUR/USD is at risk of a sharp downward correction as the Fed's dovishness is already priced in, while the ECB is highly likely to turn more dovish in the months ahead.
EUR/USD was rising slightly during the Asian and early European trading session. Today, the market will focus on a series of S&P Global Purchasing Managers' Indices (PMI) from major industrialized economies. EUR/USD traders should monitor German, eurozone, and US PMI reports today. If the European PMI numbers are below the US figures, EUR/USD may finally start moving down. The key levels to watch are the resistance at 1.11800 and the support at 1.11300.
Australian Dollar Is Bullish Ahead of the US PMI Data
AUD/USD has been trading sideways within a range of 0.67800–0.68300 on Friday. The Australian dollar (AUD) held steady due to the lack of major events and ahead of the Reserve Bank of Australia's (RBA) policy decision this Tuesday.
The RBA is expected to maintain interest rates at their current level tomorrow due to strong labor market indicators and persistent inflation pressures. According to analysts, the rate is unlikely to be reduced until the end of this year or Q2 of 2025.
Still, some Australian officials have put pressure on the central bank. For instance, the Australian Greens party has called for an end to RBA independence. They have stated that they will only support changes to the RBA's policies if interest rates are reduced. Meanwhile, the Federal Reserve's aggressive rate reduction increased the likelihood of an earlier easing in monetary policy from the RBA. In terms of the economy, recent data showed that business activity in Australia contracted in September, as services sector growth decelerated and manufacturing activity declined to a 52-month low.
AUD/USD has been trading bullish in Asian and early European trading hours. The pair has rebounded from the 0.68000 support level and looks ready to follow a new bullish impulse. Today, the market will be waiting for the US Manufacturing and Services Purchasing Managers' Index (PMI) report for September. Higher-than-expected data may put bearish pressure on the pair, while lower data may give some extra support to AUD/USD.