Gold price trades near its highest level since May on the back of geopolitical risks

30 Oct 2023, 12:22 · Views 51

Gold price consolidates its recent strong gains and manages to hold above the $2,000 mark.
Geopolitical tensions in the Middle East continue to lend support to the safe-haven metal.
A slightly overbought RSI warrants caution for bulls ahead of this week’s key event/data risks.

Gold price (XAU/USD) advanced beyond the $2,000 psychological mark on Friday, hitting its highest level since May 16 and registering a third straight weekly gain. An escalation in the Israel-Hamas conflict continues to fuel safe-haven buying and acts as a tailwind for the precious metal. Traders, however, refrain from placing fresh bullish bets and prefer to wait on the sidelines ahead of this week's key central bank event risks. The Bank of Japan (BoJ) is scheduled to announce its policy decision on Tuesday, which will be followed by the crucial monetary policy update by the Federal Reserve (Fed) on Wednesday and the Bank of England (BoE) meeting on Thursday.

Investors this week will also look to the official PMIs from China for cues about business activity in the world's second-largest economy. Apart from this, the prelim EuroZone GDP and CPI, along with the US monthly jobs report (NFP), should provide some meaningful impetus to the Gold price. In the meantime, the prospects for further policy tightening by the Fed continue to underpin the US Dollar (USD) and keep the XAU/USD bulls on the defensive through the Asian session on Monday. The lack of any follow-through selling, however, warrants some caution for aggressive bearish traders and before positioning for any meaningful corrective decline for the commodity.

Daily Digest Market Movers: Gold price hovers about $2,000 as the Israel-Hamas conflict continues to drive haven flows

Gold price manages to hold above the $2,000 psychological mark on Monday and continues to draw support from the increasing risk of an escalation of geopolitical tensions in the Middle East.
Palestinians in northern Gaza reported fierce air and artillery strikes early on Monday as Israeli troops, backed by tanks, pressed into the besieged enclave with a ground assault.
The US Commerce Department reported on Friday that consumer spending increased more than expected in September and that monthly inflation accelerated during the reported month.
This comes on top of the upbeat Advance US GDP report, which showed that the world's largest economy grew at its fastest pace in nearly two years in the third quarter.
The US economic resilience should allow the Federal Reserve (Fed) to stick to its hawkish stance and keep hopes alive for one more interest rate hike by the year-end.
The hawkish outlook remains supportive of elevated US Treasury bond yields and continues to underpin the US Dollar, acting as a headwind for the precious metal.
Traders now look to the outcome of a crucial two-day FOMC monetary policy meeting for clues about the future rate-hike path before placing fresh directional bets.
The Bank of Japan and the Bank of England are also scheduled to announce their respective policy decisions and infuse some volatility in the global financial markets.
Investors this week will further take cues from the official Chinese PMIs, the flash EuroZone CPI and GDP print and the closely-watched US jobs report (NFP).

Technical Analysis: Gold price might consolidate its recent strong gains amid a slightly overbought RSI

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is already flashing slightly overbought conditions and holding back bulls from placing fresh bets around the Gold price. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of a multi-week-old uptrend. That said, any meaningful corrective decline is likely to find decent support near the $1,986-1,985 horizontal resistance breakpoint.

The said areas should act as a pivotal point, below which the Gold price could accelerate the fall towards the $1,972 support zone. On the flip side, some follow-through buying beyond the $2,005 area, or the multi-month peak touched on Friday, will set the stage for a move towards the next relevant hurdle near the $2,022 area.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.

USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD	0.02%	-0.08%	-0.03%	-0.23%	-0.09%	-0.30%	0.14%
EUR	-0.03%	-0.10%	-0.06%	-0.25%	-0.13%	-0.32%	0.10%
GBP	0.06%	0.08%	0.00%	-0.18%	-0.03%	-0.25%	0.20%
CAD	0.06%	0.06%	-0.04%	-0.19%	-0.07%	-0.27%	0.16%
AUD	0.23%	0.26%	0.17%	0.19%	0.15%	-0.07%	0.38%
JPY	0.09%	0.11%	0.11%	0.03%	-0.15%	-0.22%	0.23%
NZD	0.31%	0.32%	0.22%	0.27%	0.07%	0.20%	0.43%
CHF	-0.14%	-0.11%	-0.21%	-0.16%	-0.36%	-0.23%	-0.43%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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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