Gold trades sideways, underpinned by continued safe-haven flows
- Gold trades in a $50 range, below the recent $2,758 record high, as it remains underpinned by haven flows.
- Relentless bombing by Israel and increased uncertainty over who will win the US presidential election are driving the flows.
- XAU/USD forms a mini range within a broader uptrend, but higher highs are still possible.
Gold (XAU/USD) stays stuck in this week’s mini range, exchanging hands in the $2,720s on Friday, as the precious metal is still supported by safe-haven flows due to a high level of geopolitical risk. The ongoing conflict in the Middle East and increasing uncertainty over who will win in the US election are both key factors driving investors to safe-play assets such as Gold.
Gold still supported as geopolitical risk premia ratchet up
Gold is likely to continue to find support from safe-haven flows as the war in the Middle East intensifies. Reuters reported on Friday that three Lebanese journalists had been killed in the bombing of a guesthouse used by members of the international press including Al Jazeera, Sky and Reuters.
This comes at the end of a week that has seen the Israelis up their bombing campaign, wiping out entire residential blocks of neighborhoods in Beirut, including a bomb that landed close to a hospital and ended the life of a child, as well as an attack that killed three Lebanese army soldiers organizing an evacuation.
In Doha, US Secretary of State Anthony Blinken is meeting with representatives from Israel and Qatar to try to negotiate an end to the conflict. This follows a separate meeting in Cairo between Egyptian diplomats and members of Hamas tasked with the same objective.
However, Hamas senior official Osama Hamdan told Lebanese pro-Hezbollah news agency Al-Mayadeen there was no change in the group's position. "The hostages held by the resistance will only return with a stop to the aggression and complete withdrawal," Hamdan said, according to Reuters.
Adding to the cocktail of geopolitical risk is the news that Republican nominee Donald Trump is edging forward in many polls, especially in key states like Wisconsin and North Carolina. This suggests he has a good chance of winning the US presidential election.
“An Emerson poll of several swing states yesterday had Trump very marginally ahead, including a 1pt lead in Pennsylvania and Wisconsin, and a 2pt lead in North Carolina," says Jim Reid, Global Head of Macro Research at Deutsche Bank on Friday.
According to the model of leading US election website FiveThirtyEight, Trump now has a slightly higher 51% chance of winning.
Nevertheless, the website’s master poll, which aggregates, averages, and weights polls according to recency, shows Vice President Kamala Harris still in the lead with 48.1% versus Trump’s 46.4%. Most betting websites offer better odds of Trump winning over Harris.
A Trump win would upset the existing geopolitical order and potentially increase safe-haven flows despite his claims to end conflicts worldwide in a matter of days.
Technical Analysis: Gold consolidates in a sideways band
Gold trades sideways in a mini range between $2,708 and $2,758 after peaking at the later level and rolling over.
That said, the yellow metal is in a steady uptrend on all time frames (short, medium and long) which given the technical principle that “the trend is your friend” the odds favor more upside.
A break above the top of the range at $2,758 would help confirm a continuation up to the next big-figure target level lies at $3,000 (round number and psychological level).
XAU/USD Daily Chart
The Moving Average Convergence Divergence (MACD) is showing a bearish divergence between the September 26 high and the current price level. Although the price has risen since the September peak, the MACD is lower. This indicates waning bullish momentum and could be a sign presaging a pullback.
Gold’s overall strong uptrend, however, suggests that any corrections will probably be short-lived, with the broader bull trend resuming thereafter.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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