- The price of Gold stops the previous day’s decline from two-month highs.
- Geopolitical risks continue to underpin demand for the safe-haven XAU/USD.
- Dovish expectations from the Fed, rising US bond yields and strong Dollar limit XAU/USD’s gains.
The price of Gold (XAU/USD) gained strong positive traction on Wednesday and soared to its highest level since early August, around the $1,962-$1,963 area, amid the risk of an escalation in the conflict. from the Middle East. However, rising US Treasury yields, driven by expectations that the Federal Reserve (Fed) will keep rates elevated for longer, capped gains in the non-yielding yellow metal. Furthermore, the rebound in demand for the US Dollar (USD) caused some profit-taking at higher levels and resulted in a slight pullback in XAU/USD.
However, the decline did not continue and stopped near the $1,938 area. Geopolitical tensions continue to drive some safe haven monetary flows, as the price of Gold oscillates within a tight range during the early hours of the European session on Thursday. The bulls seem reluctant to open aggressive positions and prefer to wait on the sidelines before Fed Chairman Jerome Powell’s speech. Investors will look for new clues on the outlook for the Fed’s monetary policy, which in turn will influence the USD price dynamics and provide a significant boost to the XAU/USD.
Daily summary of market drivers: Gold price consolidates recent strong gains and reaches its highest level since August
- The safe haven price of gold continues to receive support from concerns that the conflict between Israel and Hamas could spread to the rest of the Middle East region.
- Egyptian and Palestinian leaders called off a summit with US President Joe Biden after an explosion at a Gaza hospital killed hundreds of Palestinians.
- The UK’s Times reported that Israeli Prime Minister Netanyahu has secured President Biden’s private backing to press ahead with the ground invasion of Gaza.
- Biden stated that the United States will ensure that Israel has what it needs to defend itself and that Hamas has committed atrocities that make ISIS appear more rational.
- Upbeat U.S. retail sales figures released Tuesday suggest the economy closed out the third quarter on a strong note, lifting third-quarter GDP estimates.
- The data also raised fears of sticky inflation, which could allow the Federal Reserve to maintain its hawkish stance and raise interest rates for longer.
- This, in turn, causes a further rise in US Treasury yields and continues to support the Dollar, limiting XAU/USD’s gains.
- The 10-year US government bond yield hits a new 16-year high and approaches the psychological level of 5%.
- Investors now await the weekly release of initial jobless claims, the Philadelphia Fed manufacturing index and existing home sales.
- Attention will remain focused on Fed Chair Jerome Powell’s scheduled speech, which will be closely scrutinized for clues about the future path of rate hikes.
Technical Analysis: Gold price remains above the 200-day SMA
From a technical point of view, the previous day’s sustained break through the 200-day SMA and subsequent strength beyond the $1,947-$1,948 resistance zone was seen as a new trigger for the bullish. Furthermore, the oscillators on the daily chart remain in positive territory and are still far from the overbought zone. This, in turn, suggests that the path of least resistance for the price of Gold is upwards. That said, it would be wise to wait for buying above the previous day’s high around the $1,962-$1,963 area before positioning for further upside. XAU/USD could then accelerate the momentum towards the intermediate barrier of $1,982 and then attempt to reclaim the psychological level of $2,000 for the first time since May.
On the other hand, weakness below the $1,948-$1,947 area is likely to find good support near the 200-day SMA, currently around the $1,930 region. It is closely followed by the 100-day SMA, around the $1,922 area, ahead of the $1,930 support area, below which the price of Gold could return below the round level of the $1,900. The latter coincides with the 50-day SMA and should act as a solid base for XAU/USD. A convincing break below this region would nullify the positive outlook and shift the short-term bias in favor of the bears.
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
