- Gold continues its uptrend as the conflict in the Middle East remains unabated.
- The changing outlook for global interest rates, however, could put a limit on Gold’s upside.
- XAU/USD trends higher as a multi-time-frame uptrend extends.
Gold (XAU/USD) continues higher after the briefest of pullbacks to trade once more in the $2,730s on Tuesday. The yellow metal is rallying due to increased safe-haven demand because of the intensifying conflict in the Middle East, although it has slowed its pace as bonds sell off around the world due to a revision of the outlook for global interest rates.
From previously expecting interest rates to fall sharply, investors now see a gentler slope because unexpectedly strong US data eliminated the chances of another double-dose 50 basis point (bps) (0.50%) mega cut by the Federal Reserve (Fed). This, in turn, reduces Gold’s attractiveness as a non-interest-paying asset.
Gold rises on safe-haven flows
Gold rallies as investor demand for safety increases due to the worsening conflict in the Middle East. Despite the eleventh visit to the region by US Secretary of State Anthony Blinken since the start of the conflict, a cease-fire deal seems as elusive as ever.
On Tuesday morning, Hezbollah announced that it had launched rockets at two bases near Tel Aviv and one near Haifa. This followed a series of Israeli airstrikes on southern Lebanon and Beirut. In one Israeli strike near Beirut’s Hariri Hospital, the death toll is said to have risen to 13, according to the Lebanon Ministry of Health, as per Reuters.
On Monday, Israel stepped up its bombardment of Beirut by destroying several economic targets in an attempt to wipe out the bank that provides Hezbollah with its funding.
An expected Israeli retaliatory attack on Iran is also back on the table after an Iranian drone penetrated Israeli air defense systems and exploded near Israeli Prime Minister Benjamin Netanyahu’s private residence over the weekend.
Technical Analysis: Gold rallies toward next upside target
Gold continues rising in a steady uptrend on all time frames (short, medium and long) and, after breaching the $2,700 mark, it is now on its way to the next target at $2,750.
XAU/USD Daily Chart
The Relative Strength Index (RSI) is overbought, however, advising long-holders not to add to their positions because of an increased risk of a pullback. Should RSI close back in neutral territory, it will be a sign for long-holders to close their positions and open shorts as a deeper correction may evolve. Support lies at $2,700 (key level) and $2,685 (September high).
Gold’s overall strong uptrend, however, suggests that any corrections will likely be short-lived, and afterward, the broader bull trend will probably resume.
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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