• Gold pulls back after Tuesday’s rally on increased geopolitical risk stemming from Iran’s escalation in the Middle East. 
• The macro backdrop remains positive, however, with falling interest rates globally making Gold shine.
• Technically, XAU/USD consolidates, providing a “buy-the-dip” opportunity for bulls.  

Gold (XAU/USD) edges lower on Wednesday to trade in the $2,650s per troy ounce as traders do some backing and filling after the over 1.0% rally on Tuesday. Instability in the Middle East was the main driver behind the previous day’s recovery after Iran launched about 200 missiles, some of which were ballistic, at Israel’s capital Tel Aviv.  

That, and the fact that interest rates are falling globally, continue to support the precious metal, which keeps trading just below its new all-time high of $2,685. Lower interest rates increase the attractiveness of non-interest bearing Gold as a portfolio item for investors. 

Gold faces volatility from changing outlook for US rates

Gold has seen volatility over the past week from a rapidly changing outlook for interest rates in the US which has also impacted the strength of the US Dollar (USD), another factor driving valuations. 

The precious metal pulsed higher last week as bets the Federal Reserve (Fed) would cut interest rates by another double-dose 50 basis points (0.50%) at its November meeting hit fever pitch. Expectations the bank would slash rates further also weighed on the USD, adding momentum to the yellow metal’s rise. 

However, unexpectedly strong data – especially covering the fragile US jobs market – and a cautious speech from Fed Chairman Jerome Powell on Monday have since reduced bets of a double-whammy 50 bps cut, from over 60% last week to only 37% at the time of publication on Wednesday.