Gold Price Nears $2,630; China’s Economic Slowdown and Middle East Tensions Drive

Gold prices continue to struggle early Tuesday, testing the lower boundary of the recent trading range around $2,630 per ounce.

The precious metal remains under pressure due to a combination of economic concerns from China, shifting U.S. Federal Reserve policy expectations, and rising geopolitical tensions in the Middle East. As traders brace for heightened volatility, the outlook for gold remains uncertain.

China’s Economic Slowdown Dampens Gold Demand

Concerns over China’s slowing economic recovery have heavily weighed on gold prices. China, the world’s top consumer of gold, is grappling with rising economic risks as indicated by the National Development and Reform Commission (NDRC). The NDRC’s latest report painted a gloomy picture of the country’s economic prospects, stating that “the downward pressure on China’s economy is increasing.” This has led to renewed caution among global investors.

GOLD PRICES FALL SLIGHTLY AT THE START OF WEEKLY TRADING!

Gold prices witnessed some slight losses, coinciding with the increase in concerns about weak Chinese demand for gold, especially since China is considered one of the largest consumers of the yellow metal in the world.

— Nova – Scalper (@NovaScalper) October 7, 2024

Despite Chinese equity markets reopening with strong gains after a week-long holiday, the lack of fresh stimulus measures from the government disappointed market participants. Analysts had been hoping for more aggressive policy support to spur economic growth, but no new announcements were made. This uncertainty has dampened gold’s appeal, as it signals lower consumption in China and reduced demand for the metal.

U.S. Federal Reserve Policy in Focus

In the U.S., dovish comments from Federal Reserve officials have provided only limited relief for gold prices. St. Louis Fed President Alberto Musalem hinted at a potential slowdown in the pace of rate hikes, stating that “further gradual reductions in the policy rate will likely be appropriate over time.” While this eased some concerns about aggressive monetary tightening, the U.S. Dollar and Treasury yields remain strong, keeping gold prices under pressure.

Currently, markets are pricing in an 86% probability that the Fed will opt for a smaller 25 basis points rate cut at its next meeting, according to the CME Group’s FedWatch Tool. Traders are now keenly awaiting speeches from Atlanta Fed President Raphael Bostic and Fed Vice Chairman Philip Jefferson for further clues on the central bank’s future policy stance.

Geopolitical Tensions Offer Limited Support

Geopolitical tensions in the Middle East, particularly between Israel and Iran, have yet to significantly boost demand for gold as a safe-haven asset. The conflict escalated after Iran-backed Hezbollah launched several rockets into Israel’s third-largest city, Haifa, prompting a targeted military response from Israel in southern Lebanon. While such conflicts typically drive safe-haven buying, gold’s response has been muted thus far.

In September, Gold prices continued to rise, benefiting from geopolitical risks and expectations of Fed rate cuts, while industrial metals like copper saw gains.

Energy prices, particularly oil, remained under pressure, reflecting concerns about demand from China​.

— Bullshark Financial (@Bullsharkfin) October 6, 2024

Technical Outlook: Awaiting a Breakout

Gold prices are currently trading within a symmetrical triangle pattern on the 2-hour chart, indicating a period of consolidation. Key levels to watch include $2,639.06 (support) and $2,655.81 (resistance). A breakout from this range could lead to increased volatility, with potential upside targets at $2,661.82 and $2,670.11, while a downside move could open the door for declines towards $2,632.39 and $2,624.90.

Conclusion

Gold remains caught between conflicting forces. Weakness in China’s economy, a firm U.S. Dollar, and subdued geopolitical responses are all keeping prices constrained. With a potential breakout on the horizon, traders should stay alert for decisive moves in either direction. The next few sessions will be critical in determining gold’s short-term trajectory.