Due to China's stimulus measures failing to alleviate deflationary pressures, gold prices have declined.
Comments from Minneapolis Federal Reserve Chairman Kashkari on moderate rate cuts and a strong labor market further supported the US dollar.
Geopolitical tensions, including Israel's response to Hezbollah and Iran, continue to impact gold prices, with traders looking ahead to US economic data later this week.
As China's stimulus measures failed to provide a boost to the financial markets, the US dollar extended its gains, causing gold prices to retreat after reaching a daily high of $2,666 on Monday.
Over the weekend, data showed that China's economy faces deflationary pressures, potentially preventing it from achieving a 5% Gross Domestic Product (GDP) target. In response, Chinese Finance Minister Lan Fo announced that the government will continue to provide stimulus measures to support the real estate market and replenish state-owned bank capital to stimulate the economy.
Meanwhile, the US bond market was closed in observance of Columbus Day, but gold prices fell amidst a strong US dollar.The US Dollar Index (DXY), which tracks the value of the dollar against a basket of six currencies, rose slightly by 0.38% to 103.30, marking its highest level since early August 2024.
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Earlier, Minneapolis Federal Reserve Chairman Neel Kashkari revealed that he anticipates "further modest reductions in our policy rate." He added that recent employment data indicates a strong labor market, and the economy will ultimately pull the inflation rate back to 2%.
In the meantime, geopolitical factors will continue to play a role in pricing gold. News agencies have disclosed that Israel has begun convening security meetings to determine its response to the attacks by Iran and Hezbollah in Tel Aviv.
The US economic calendar for this week will include the New York Empire State Manufacturing Index on Tuesday, followed by the trade balance on Wednesday. Federal Reserve (Fed) members will also be speaking throughout the week.
Daily market movements: Gold traders watch key US economic data
It is estimated that on Tuesday, the New York Empire State Manufacturing Index for October is expected to drop from 11.3 to 2.3.Federal Reserve officials, including San Francisco Fed President Mary Daly, Board of Governors member Adriana Kugler, and Atlanta Fed President Raphael Bostic, are scheduled to make public speeches.
The slight increase in the Consumer Price Index (CPI) combined with Friday's weak U.S. employment report could lead the Federal Reserve to further reduce interest rates.
With the possibility of the Federal Reserve adopting a more aggressive easing policy becoming increasingly slim, the yield on the benchmark U.S. 10-year Treasury note remains above the 4% threshold.
Data from the Chicago Mercantile Exchange based on December federal funds rate futures contracts shows that investors expect the Federal Reserve to ease by 46 basis points (bps) by the end of 2024.
Gold/USD Technical Outlook: Gold Price Falls to $2,650
Despite falling from around $2,660 to the $2,650 area, the upward trend in gold prices remains intact. Momentum is bullish as indicated by the Relative Strength Index (RSI), although the RSI has slightly declined, indicating that there is still some selling pressure.
If XAU/USD breaks below $2,650, it could pave the way for further declines. The next key support level will be $2,600. Breaking through the latter will put the 50-day simple moving average (SMA) at $2,550.
Conversely, if XAU/USD breaks through the high of $2,670 on October 4th, this could pave the way for a challenge to the year-to-date high of $2,685, which is above the $2,700 mark.