Gold price aims to recapture five-month high amid Middle East conflicts

23 Oct 2023, 17:46 · Views 53

Gold price discovered support near $1,970.00 as demand for safe-haven assets remains intact.
Investors shift focus to the US Q3 GDP data that will provide an undertone for the Fed’s interest rate outlook.
Fed policymakers are consistently supporting keeping interest rates unchanged.

Gold price (XAU/USD) recovered after a corrective move from the psychological resistance that was inspired by rising long-term US Treasury yields. The precious metal aims to recapture a five-week high as Israel-Palestine tensions keep the fears of widening Middle East conflict persistent. The 10-year US Treasury yields jumped to a multi-year high of 5% amid expectations of firmer US economic data, which will be published this week.

Investors will keenly watch for the growth rate in the July-September quarter, which will set the undertone for interest rates by the year-end. An upbeat growth rate would demonstrate strong labor market conditions, robust consumer spending, and a recovery in economic activities despite tight monetary policy by the Federal Reserve (Fed).

Daily Digest Market Movers: Gold price rebounds as Middle East tensions remain firm

Gold price finds intermediate support after correcting to near $1,965.00 as escalating Middle East tensions keep the safe-haven demand firmer.
Rising tensions between Israel and Palestine have escalated fears of a wider conflict in the Middle East.
The potential ground invasion plan of the Israeli army would strengthen after humanitarian aid to Gaza civilians and the safe release of hostages.
Fears of Iran's intervention in the Israel-Palestine conflicts remain firm amid expectations of sanctions on Palestine and Iran to squeeze revenue for funding the Hamas military.
The precious metal witnessed selling pressure after registering a fresh five-month high near the psychological resistance of $2,000.00 as investors shifted focus to the economic data, which will be released this week.
Rising long-term US Treasury yields built some pressure on the Gold price as investors saw strong numbers from the Q3 Gross Domestic Product (GDP), preliminary S&P Global PMIs for October and core Personal Consumption Expenditure (PCE) price index data for September.
The Manufacturing PMI for October is seen remaining below the 50.0 threshold for the 12th time in a row. Also, the Services PMI is seen marginally below 50.0, demonstrating the impact of higher interest rates by the Federal Reserve.
This week, the major focus will be on the July-September GDP data, which will be published on Thursday. As per the estimates, economists see the annualized growth rate at 4.1% against the former reading of 2.1%. An upbeat GDP data would keep hopes of one more interest rate increase in the remaining year of 2023 alive.
As per the CME Fed watch tool, traders see the Fed keeping interest rates unchanged at 5.25-5.50% almost certain. The odds of one more interest rate increase in any of the two remaining monetary policy meetings in 2023 remain around 24%.
The US Dollar trades in a narrow range above the immediate support of 106.00 as investors see GDP data for fresh guidance on interest rates.
Last week, the commentary from Fed policymakers kept the US Dollar on the tenterhooks. Cleveland Fed Bank President Loretta Mester said that the Fed is at or near the peak of interest rates. She further added that policymakers need to be “nimble” amid current economic uncertainties.
Atlantic Fed Bank President Raphael Bostic, in an interview with CNBC, said that a slowdown is coming due to higher interest rates but the economy won’t see a recession. Bostic remains confident that the central bank will get inflation under control. He forecasted that the Fed would cut interest rates in late 2024.

Technical Analysis: Gold price finds support below $1,970

Gold price recovers after a corrective move to near $1,970.00 and is expected to recapture the five-month high near $2,000.00. The precious metal recorded significant gains for two weeks. A bull cross, represented by the 20 and 50-day Exponential Moving Averages (EMAs), warrants more upside ahead. Momentum oscillators shift into the bullish range, indicating that the upside momentum has been activated.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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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