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XAU/USD climbs to $1,650 area amid sliding US bond yields, weaker USD


1 November 2022

Gold gains strong positive traction on Tuesday amid the emergence of fresh USD selling. Expectations for a less hawkish Fed, sliding US bond yields continue to weigh on the buck. A positive risk tone might cap gains for the metal amid bets for additional Fed rate hikes. Gold attracts some buyers near the $1,630 area and stages a goodish intraday recovery move from over a one-week low touched earlier this Tuesday. The upward trajectory extends through the first half of the European session and lifts the XAU/USD to a fresh daily high, around the $1,650 level in the last hour. The US dollar meets with a fresh supply and stalls its recent strong rebound from over a one-month low, which, in turn, is seen offering support to the dollar-denominated commodity. Speculations that the Fed will signal a less aggressive rate-hiking cycle at the end of its November policy meeting on Wednesday continue to act as a headwind for the greenback.

The repricing of the Fed's policy tightening path leads to a further decline in the US Treasury bond yields. In fact, the benchmark 10-year Treasury note slides back below the 4.0% threshold, which further undermines the buck and provides an additional lift to the non-yielding gold. That said, a combination of factors warrants some caution for bullish traders.

The US central bank is still expected to deliver another supersized 75 bps rate increase for the fourth successive time in as many meetings. Moreover, the fed funds futures point to over a 50% chance of a 50 bps rate hike in December. This, along with a recovery in the global risk sentiment, should keep a lid on any meaningful gains for gold, at least for now. The fundamental backdrop favours bearish traders and suggests that any subsequent move up runs the risk of fizzling out rather quickly near the $1,670-$1,672 supply zone. This, in turn, makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move. Traders now look to the US ISM Manufacturing PMI for a fresh impetus.

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