Escalation of Israel-Palestine Conflict May Boost Safe-Haven Demand and Sustain Gold's Rebound?

Gold may continue its short-term rebound, primarily influenced by the escalation of geopolitical risks due to the Israel-Palestine conflict. Key resistance levels are at $1850 and $1860 , while support levels are at $1944 and $1932. Recent dovish signals from  Fed officials and reduced expectations of rate hikes for the year, coupled with the escalation of the Israel-Palestine conflict, are all favorable for gold. Additionally, based on CFTC positioning data and technical analysis, the medium to long-term downtrend in gold remains unchanged, with the short-term expected to see some volatile upside movements.

Last week (October 9th-15th), precious metals saw a general rise, with gold increasing by 3.45% and silver rising by 1.99%. This was mainly influenced by the geopolitical events in the Israel-Palestine region, declining 10-year US Treasury yields, and dovish comments from  Fed officials. Gold experienced a significant surge on Friday, gaining over $64 in a single day and ultimately closing near $1932.

Source: MacroMicro, Price Changes of Major Precious Metals and Futures from October 9th to15th

On Thursday (October 12th), the US Department of Labor released the Consumer Price Index (CPI) data for September, which showed rapid growth for the second consecutive month, primarily driven by surging energy prices. Although the core CPI growth slightly slowed down, housing costs remained the main contributing factor to overall growth.

The data revealed that the US CPI increased by 3.7% YoY in September, slightly higher than the expected 3.6%, but unchanged from the previous value. Core CPI, which excludes food and energy costs, grew by 4.1%, in line with expectations and lower than the previous 4.3%. This represents the slowest growth rate in nearly two years. The cooling of core CPI to some extent eased the pressure on the  Fed, but persistent strength in energy prices makes it challenging to curb inflation.

Furthermore,  Fed official Harker expressed dovish views on Friday, suggesting that the Fed could halt rate hikes. He stated that the Fed has made substantial progress, with current inflationary pressures gradually easing without adverse effects such as a significant increase in unemployment. The full impact of rate hikes will take some time to be felt, and given that the Fed has already implemented several rate hikes, maintaining the current interest rates and observing the subsequent effects while referring to the latest data can guide future policy directions.

Mitrade Analyst 

The September CPI data in the US has led the market to expect the  Fed to maintain high rates for a longer period, reducing the likelihood of rate hikes this year. This is primarily due to the escalation of the Israel-Palestine conflict, which has boosted safe-haven assets like gold along with the strengthening of the US dollar. 

Additionally, the slight pullback in US Treasury yields last week has also supported the rebound in gold. Overall, short-term upside momentum for gold will likely be driven by the escalation of the Israel-Palestine conflict and reduced expectations of rate hikes this year. However, if tensions ease in the region, there is a possibility of gold retracing its gains.

The ongoing escalation of conflict between Israel and Palestine has resulted in a significant loss of life and injuries. Local health authorities in Palestine report that as of the 15th, over 4,100 people have died, with over 20,000 injured. Israel has imposed a complete blockade on the Gaza Strip and issued a notice requiring 1.1 million residents in the northern area to relocate to the southern region within 24 hours.

Despite strong calls from the United Nations to revoke this order, Israeli Prime Minister remains resolute in suppressing and eliminating Hamas. Furthermore, there have been attacks by Israel that have affected areas in Syria, Lebanon, and other neighboring regions. Market concerns are growing that the escalation of the Israel-Palestine conflict could spiral out of control and potentially involve countries like Iran, leading to a sixth Middle East war.

In terms of CFTC positioning, recent data shows a reduction in speculative long positions and an increase in short positions for gold. According to the latest CFTC report from October 4th to 10th, speculative long positions decreased by 19,793 to 71,433 contracts, while open futures contracts for speculative long positions decreased by 8,074 to 220,332 contracts, and short positions increased by 11,719 contracts. This indicates that short-term market investors have a bearish outlook on gold.

Mitrade Analyst 

Overall, the decrease in speculative long positions and the continuous increase in short positions among open contracts suggest that investors have a bearish view on the future of gold. However, due to the ongoing escalation of the Israel-Palestine conflict and the sustained demand for safe-haven assets, gold may experience a continued minor rebound in the short term. Nonetheless, the medium to long-term downtrend in gold is unlikely to change.

From a technical standpoint, the 60-day MA indicates a downtrend. The 14-day RSI value of 60.2 is above 60, indicating positive momentum. The daily MACD shows the short-term line crossing above the long-term line at the bottom, forming a significant bullish crossover with higher bars above the zero line. The DIFF and DEA are negative, but the MACD itself is positive, suggesting a potential short-term oscillation and upward movement for gold.

Resistance Levels: $1932, $1944

Support Levels: $1860, $1850

Source: Investing.com, Daily Gold Chart on October 16th

Mitrade Analyst 

Considering the analysis of various indicators, the medium to long-term downtrend in gold remains unchanged, while the short-term outlook suggests possible oscillation and upward movement.

Additionally, investors should pay attention to news and economic data that could provide guidance for the future direction of gold, such as the US September retail sales figures, speeches from  Fed Chair Powell, and European Central Bank President Lagarde.