Gold pushes higher on increased safe-haven demand as Middle East conflict intensifies


  • Gold rises on increased safe-haven demand as the conflict in the Middle East deepens. 
  • Israel steps up bombing of Beirut and is poised to launch a retaliatory attack on Iran after a bomb explodes near Netanyahu’s house.  
  • XAU/USD continues trending higher as it pushes deeper into territory above $2,700. 

Gold (XAU/USD) is already up half a percent to trade in the $2,730s on Monday during the European session after rising over 1.0% on Friday. The precious metal is gaining on a mixture of increased safe-haven demand due to the intensifying conflict in the Middle East and moves by the People’s Bank of China (PBoC) to further ease credit conditions by cutting interest rates. 

The PBoC’s move to lower its one-year and five-year prime loan borrowing rates not only has the effect of increasing Gold’s attractiveness as a non-interest-paying asset, but also suggests the potential of more demand for Gold from Chinese investors and private buyers, who already make up the largest market for the commodity in the world. 

Gold rises as Middle East tensions reach boiling point

Gold rallies as investor demand for safety increases due to the deepening conflict in the Middle East. Israel has 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. The bank, which also serves a large Shiite population of muslims in Lebanon, is the main conduit for donations to Hezbollah, including $50 million a year from Iran, according to Bloomberg News.  By destroying it, Israel not only hopes to remove the organization’s principal source of funding but also ferment discord amongst Hezbollah and the Shiite Lebanese community.

Further, Israel’s retaliatory attack on Iran is back on the table after an Iranian drone penetrated Israeli air-defense systems and exploded near the Israeli Prime Minister Benjamin Netanyahu’s private residence. Following the attack, Netanyahu convened several emergency meetings to discuss preparations for Israel’s delayed attack on Iran. 

Technical Analysis: Gold approaches next target as trend extends

Gold is 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 strong overall uptrend, however, suggests that any corrections are likely to be short-lived, and afterward the broader bull trend will probably resume.  

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD falls as Wall Street turns red

EUR/USD falls as Wall Street turns red

EUR/USD turned bearish as Wall Street gives up and major indexes turn red. The pair trades near a fresh weekly low in the 1.0460 price zone. Earlier in the day, the European Central Bank trimmed interest rates as expected, and the United States published discouraging employment and inflation-related data.  

EUR/USD News
GBP/USD dips below 1.2700 as US Dollar surges on risk aversion

GBP/USD dips below 1.2700 as US Dollar surges on risk aversion

GBP/USD finally broke below the 1.2700 mark in the American session, as sentiment shifted to the worse, following dismal US employment and inflation-related data. The poor performance of stocks and an uptick in Treasury yields boost demand for the US Dollar. 

 

 

GBP/USD News
Gold could extend its corrective slide

Gold could extend its corrective slide

XAU/USD fell towards $2,680 and remains under pressure as investors diggest US figures and the  European Central Bank monetary policy announcement. Inflation in the US at wholesale levels rose by more than anticipated in November, according to the latest Producer Price Index release. 

Gold News
Chainlink surges amid World Liberty purchase, Emirates NBD partnership and CCIP launch on Ronin network

Chainlink surges amid World Liberty purchase, Emirates NBD partnership and CCIP launch on Ronin network

Chainlink price surges around 15% on Thursday, reaching levels not seen since mid-November 2021. The rally was fueled by the Donald Trump-backed World Liberty Financial purchase of 41,335 LINK tokens worth $1 million on Thursday.

Read more
Can markets keep conquering record highs?

Can markets keep conquering record highs?

Equity markets are charging to new record highs, with the S&P 500 up 28% year-to-date and the NASDAQ Composite crossing the key 20,000 mark, up 34% this year. The rally is underpinned by a potent mix of drivers.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures