Gold dives as US yields climb amid escalating Middle East tensions
- Gold retreats beneath $2,400 as US bond yields rise.
- Israel braces for potential Hamas retaliation, elevating regional tensions.
- Asian central banks, including the People's Bank of China, hold off on physical Gold purchases.
Gold price retreats below $2,400 and erases previous gains on Wednesday late in the North American session, despite rising geopolitical tensions in the Middle East and expectations for a looser monetary policy by the Federal Reserve (Fed). The XAU/USD trades at $2,385, down 0.06%.
Geopolitical tensions remain elevated as Israel awaits Hamas retaliation due to the assassination of its leader, Ismail Haniyeh. US intelligence suggests the response could be delayed until late Thursday or Friday. Meanwhile, Egypt instructed all its airlines to avoid Iranian air space for a three-hour period on Thursday due to tension between Israel and Iran.
Given the backdrop, Gold’s losses were tempered by mood. Nevertheless, the rise in US Treasury bond yields weighed on the non-yielding metal and boosted the Greenback.
The US 10-year Treasury note is up seven basis points (bps) and yields 3.968%. The US Dollar Index (DXY), which tracks the performance of the American currency against the other six, aims up 0.27% at 103.20.
A scarce economic docket in the US keeps investors focused on Initial Jobless Claims data, revealed on Thursday. TD Securities analysts commented, “Jobless claims on Thursday is something markets will be looking for confirmation of slowing economic numbers, particularly employment.”
Meanwhile, major Asian central banks refrained from buying physical Gold. Reports from the World Gold Council hint that China didn’t buy the yellow metal for the third straight month.
Daily digest market movers: Gold price on the defensive amid risk-on mood
- Worries of a US recession had faded, shown by market mood. Despite this, traders expect the Federal Reserve (Fed) will cut interest rates by 50 basis points at the September meeting.
- Market players found some relief following the ISM Services PMI release, which revealed the economy continues to expand at a healthier pace. However, all eyes are at Initial Jobless Claims for the week ending August 3.
- Initial Jobless Claims are expected to dip from 249K to 240K, according to estimates.
- Richmond Fed President Thomas Barkin will hit the wires on Thursday.
- The Fed decided to hold rates unchanged last week but indicated that favorable data on inflation and further weakening in the labor market could prompt action.
- The CME FedWatch Tool shows the odds of a 50-basis-point interest rate cut by the Fed at the September meeting at 63.5%, down from 68% a day ago.
Technical analysis: Gold price looms around $2,390
Gold prices remain consolidated shy of $2,400, which could pave the way for testing the $2,300 mark in the near term. Momentum is flat, an indication that neither buyers nor sellers are in charge, based on the Relative Strength Index (RSI) that is meandering around the neutral level.
If XAU/USD continues to weaken, the next support would be the 50-day Simple Moving Average (SMA) at $2,367, ahead of the 100-day SMA at $2,344. This would be followed by a support trendline around $2,316. Once cleared, the next support would be $2,277, the May 3 low.
Conversely, if buyers reclaim $2,400, the next resistance would be the psychological $2,450 mark. A breach of the latter will expose the August 2 peak at $2,477. Followed by the all-time high at $2,483 ahead of $2,500.
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.
Author
Christian Borjon Valencia
FXStreet
Christian Borjon began his career as a retail trader in 2010, mainly focused on technical analysis and strategies around it. He started as a swing trader, as he used to work in another industry unrelated to the financial markets.
