Gold Defies Strong Dollar, Heads for YTD High

Due to the decline in U.S. Treasury yields, which boosted demand for non-yielding assets, gold/dollar climbed.

Traders anticipate that as inflation cools, major central banks will cut interest rates, with the European Central Bank expected to take action on October 17th.

Amid concerns over economic slowdown, geopolitical uncertainties have driven demand for gold as a safe-haven asset.

Gold prices rose during Wednesday's North American mid-session, supported by the decline in U.S. Treasury yields and the recent strengthening of the dollar. Expectations of rate cuts by major central banks in the context of weak inflation data have suppressed bond yields and bolstered the non-yielding metal. XAU/USD traded at $2,674.5.

Market sentiment has recently improved, with three out of the four major U.S. stock indices trading in the green. U.S. Treasury yields continued to decline, which was favorable for gold prices, touching the year-to-date (YTD) high of $2,685, but lacked the strength to push prices above $2,700.

During the European session, the UK's inflation rate fell below the Bank of England (BoE)'s 2% target. Consequently, the Bank of England is expected to align with the Federal Reserve and the European Central Bank in resuming an easing cycle. Traders anticipate that the European Central Bank will cut rates on October 17th, as inflation aims to achieve the bank's target, and there are also concerns about the risk of recession in the Eurozone economy.

Seeking safe-haven traders bought on dips, causing gold to climb, due to the predicament of a potential global economic slowdown and the uncertainties surrounding the upcoming U.S. elections.

UBS analysts wrote, "We expect uncertainty and volatility to rise before the next U.S. administration takes office," suggesting that gold and oil can serve as "effective portfolio hedges."

Meanwhile, according to the CME FedWatch tool, traders see a 96% chance of a 25 basis point rate cut in the U.S. in November.The scarcity of economic data has led traders to focus on developments in the Middle East and China's stimulus plans.

Market participants' attention shifts to the upcoming release of U.S. retail sales, industrial production data, and initial jobless claims later this week.

Daily market summary drivers: Investors eye key U.S. data as gold prices climb

The U.S. 10-year Treasury yield decline continues to support gold prices.

The 10-year benchmark note rate fell by 2 basis points to 4.014%.

Nevertheless, the overall strength of the dollar has capped the gold price rally towards $2,700.

Data from the Chicago Mercantile Exchange based on December federal funds rate futures contracts indicate that investors anticipate the Federal Reserve will ease policy by 50 basis points (bps) in the last two months of 2024.

XAU/USD technical outlook: Gold prices surge above $2,670, on track to peak year-to-date

The uptrend in gold remains intact, with buyers launching their first assault on the year-to-date high of $2,685, but they failed to break through the latter. As shown by the Relative Strength Index (RSI), the momentum remains bullish, opening the door for higher prices.Therefore, the first resistance level for gold is the year-to-date high of $2,685. Once cleared, it will move to $2,700, followed by $2,750 and then $2,800.

Conversely, if the XAU/USD breaks below the high of $2,670 on October 4, it is expected to retreat to $2,650. If it continues to weaken further, the next support level will be $2,600, followed by the 50-day simple moving average (SMA) at $2,561.