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Gold advances to new lifetime high amid the worsening Middle East crisis

Republished By Plato
Republished By Plato

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  • Gold price continues to scale new record highs amid persistent geopolitical tensions.
  • The strong move up seems unaffected by reduced Fed rate cut bets and bullish USD.
  • Extremely overbought conditions might prompt some profit-taking around the metal.

Gold price (XAU/USD) prolongs its strong bullish trajectory witnessed over the past three weeks or so and climbs to the $2,400 neighborhood, or a fresh all-time peak during the early part of the European session on Friday. Investors remain concerned about geopolitical risks stemming from conflicts in the Middle East, which, in turn, has been a key factor fueling the ongoing positive momentum. Apart from this, expectations that major central banks will cut interest rates this year offer additional support to the non-yielding yellow metal.

Meanwhile, the US Dollar (USD) climbs to its highest level since November 14 and remains well support by speculations that the Federal Reserve (Fed) could delay cutting interest rates. The expectations were lifted by the hotter US consumer inflation figures released on Wednesday, which remains supportive of elevated US Treasury bond yields and continues to boost the USD. This, however, does little to dent the strong bullish sentiment surrounding the Gold price and suggests that the path of least resistance for the XAU/USD is to the upside. 

Daily Digest Market Movers: Gold price continues to attract haven flows amid geopolitical risks

  • Heightened tensions in the Middle East, amid a possible Iranian retaliation over a suspected Israeli strike on its embassy in Syria, lift the safe-haven Gold price to a fresh all-time high on Friday.
  • The cooler-than-expected US Producer Price Index released on Thursday keeps alive hopes for an imminent interest rate cut by the Federal Reserve and provides an additional boost to the XAU/USD 
  • According to the CME Group’s FedWatch tool, traders see a greater chance that the Fed will not start its rate-cutting cycle before the September policy meeting and fewer than two rate cuts this year. 
  • New York Fed President John Williams noted that inflation setbacks are not a surprise and that the central bank does not need to change policy in the near term, though eventually will need to cut rates.
  • Richmond Fed President Thomas Barkin said that the central bank is not yet where it wants to be on inflation and this week’s CPI report did not increase his confidence that disinflation is spreading.
  • The hawkish outlook keeps the US Treasury bond yields elevated, which allows the US Dollar to stand tall near the YTD top, albeit does little to dent the bullish sentiment surrounding the XAU/USD.

Technical Analysis: Gold price bulls seem unaffected by extremely overbought RSI on the daily chart

From a technical perspective, the strong positive momentum remains uninterrupted despite the extremely overbought Relative Strength Index (RSI) on the daily chart. Bulls, however, might opt to take some profits near the $2,400 mark heading into the weekend, warranting some caution before positioning for any further appreciating move. Any meaningful corrective slide below the Asian session low, around the $2,370 area, however, is likely to find decent support near the $2,352-2,350 region. Some follow-through selling could expose the next relevant support near the $2,332 area before the Gold price eventually drops to the $2,300 neighborhood, or the weekly low.

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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