Gold holds firm near record high, boosted by tensions in Middle East, US elections
- Gold remains elevated amid renewed Middle East hostilities.
- US election uncertainty adds to gold’s appeal, with polls showing a tight race between Trump and Biden in key swing states.
- Rising US Treasury yields and a rebounding Dollar cap gains, with DXY up 0.29% and limiting further upside for the yellow metal.
Gold price remains firm ahead of the weekend late in the North American session, up 0.18% after hitting a record high on Wednesday at $2,758. Elevated tensions in the Middle East and uncertainty around US elections keep traders flocking to the safe-haven metal. The XAU/USD trades at $2,740 at the time of writing.
Geopolitics pushed aside US economic data as the main driver for price action. Hostilities continued Friday between Israel and Hezbollah at around the border of Israel and Lebanon. Israeli officials said that around 45 missiles were launched by the terrorist organization.
Meanwhile, Israel attacked eastern Lebanon, leading to the closure of the Al-Qaa and the Masnaa border crossings via Lebanese officials and the United Nations. Israel stated they targeted Hezbollah’s infrastructure.
According to CNN, the US Secretary of State Anthony Blinken met with Middle East leaders in London, trying to end the war in Gaza.
Aside from this, traders are also eyeing US elections. Deutsche Bank Analyst Jim Reid wrote, “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. But given the margin of error is just over three points for those polls, this remains a very tight race, as reflected in various prediction markets and forecast models.”
Recently, US Treasury yields recovered after diving to daily lows and turned positive, capping Bullion prices. Also, Greenback is staging a recovery as the US Dollar Index (DXY), which tracks the Dollar's value against a basket of six currencies, is up 0.29% at 104.32.
Data-wise, the US economic docket revealed that US Durable Goods Orders dropped in September. At the same time, the University of Michigan (UoM) revealed that Consumer Sentiment amongst Americans improved in October.
Daily digest market movers: Gold price remains firm despite higher US yields
- The US 10-year Treasury note yield rises two basis points to 4.23%.
- US Durable Goods Orders in September fell by 0.8% month-over-month (MoM), which was better than the estimated -1% decline and unchanged from the previous month.
- US Consumer Sentiment in October came in better than expected, rising to 70.5, compared to the forecast of 69.
- The same survey revealed that inflation expectations for one year dropped from 2.9% to 2.7%, while expectations for five years remained unchanged at 3%.
- Data from the Chicago Board of Trade, based on the December fed funds rate futures contract, indicates that investors estimate 49 basis points (bps) of Fed easing by the end of the year.
XAU/USD technical outlook: Gold price rises above $2,740
Gold price remains upward biased, though it has consolidated at around $2,708-$2,758 during the last four days, unable to crack the bottom-top of the range.
Momentum indicators suggest that buyers are gaining strength, with the Relative Strength Index (RSI) reversing its decline and moving upwards in bullish territory.
If XAU/USD clears $2,750, the next resistance level will be the year-to-date (YTD) high at $2,758. Once surpassed, the next target would be $2,800.
On the downside, if bullion prices fall below the October 23 low of $2,708, the next support lies at the 38.2% Fibonacci Retracement level at $2,699, followed by the 50% and 61.8% Fibonacci Retracement levels at $2,681 and $2,662, respectively.
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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