Gold prices extended their losses on Tuesday as a strong dollar against a basket of major currencies dented demand for the precious metal.
A stronger dollar makes commodities priced in the greenback more expensive for holders of other currencies, denting demand.
Gold prices on COMEX have been hovering around $2,600 per ounce for the last few sessions as the bullish movement takes a breather.
At the time of writing, the most-active December contract of gold on COMEX was at $2,664,90 per ounce, down 0.1% from the previous close.
Dollar gains on reduced US rate cut bets
Gold has been struggling to surpass its September peaks, when prices rose to $2,696,90 per ounce.
The dollar has gained sharply over the last few sessions as investors expect the US Federal Reserve to not cut interest rates by a larger percentage like its previous meeting.
In the US, hotter inflation and a resilient labour market have reduced bets of a larger interest rate cut by the Fed.
Investors now expect the Fed to cut rates by 25 basis points at its November meeting. In September, the US central bank had cut rates by 50 bps, surprising the financial and commodities market.
The dollar extended its previous week’s gains, and hit its highest level in over two months after Fed Governor Christopher Waller urged “more caution” on rate cuts ahead, citing recent economic data.
“Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year,” Waller added.
Easing Middle East tensions
Gold bulls are also facing some pressure from easing tension in the Middle East as the world waits for Israel’s retaliation against Iran after the latter attacked Tel Aviv on Oct 1.
Gold prices are likely to face some headwinds after the Washington Post reported that Israeli Prime Minister Benjamin Netanyahu told the US that Israel would target the Iranian military, not nuclear or oil facilities.
The report suggests that there will be a more limited counter strike aimed at preventing a full-scale war.
However, there has not been any escalation so far since Iran fired ballistic missiles towards Israel on October 1. This has somewhat diffused the tensions in the region.
Technical outlook for gold prices
According to Fxstreet, gold prices have support above the key 21-day simple moving average (SMA) at $2,635 per ounce for the rest of this week.
The 14-day relative strength index (RSI) holds firm, indicating that any drop in prices could be a good buying opportunity for traders, Fxstreet said in a report.
If the gold price rebound from their current slumber, the next target could be around $2,700 per ounce.
Dhwani Mehta, senior analyst at Fxstreet said in a report:
Conversely, the immediate support is seen at the 21-day SMA at $2,632, below which the three-week lows near the $2,600 threshold will be tested.
“A sustained break below the latter could extend the downside toward the September 20 low of $2,585,” she further said.
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