- Gold extends its uptrend on the back of safe-haven flows due to the continued conflict in the Middle East.
- The BRICS summit further puts the spotlight on the precious metal as an alternative to the dominance of the US Dollar.
- XAU/USD breaks above the $2,750 psychological level as the multi-time-frame uptrend extends.
Gold (XAU/USD) continues trending higher and enters the territory of the $2,750s on Wednesday, reaching new all-time highs. Investor demand for safe havens is a major driver of the rally amid the continued conflict in the Middle East and increased election uncertainty in the US. There, former President Donald Trump and Vice President Kamala Harris are running neck-and-neck in opinion polls and the increased chance of a Trump victory is seen as a threat to a stable geopolitical outlook.
A further factor could be the focus on the BRICS trading bloc as the group kicks off its 2024 summit and its members – especially Russia – seek to find an alternative to the dominance of the US Dollar (USD), with a currency backed by Gold touted as a viable alternative.
Limiting gains for the precious metal, however, is the global bond rout as investors see interest rates around the world falling at a slower pace than previously envisioned.
This revision in outlook is the starkest in the US, where the US Federal Reserve (Fed) had previously been expected to be more aggressive in slashing interest rates, but is now on a much gentler downward trajectory. With interest rates and the US Dollar expected to remain relatively elevated, Gold loses some of its luster as a non-interest-paying asset.
Gold backed by safe-haven flows
Gold pushes ever higher as war wages on in the Middle East. Fighting continues between the Israeli army, Hamas and Hezbollah in Gaza and Lebanon despite efforts at a ceasefire. Investors are turning to safe-haven assets like Gold to lessen risk.
The death of the Hamas leader Yahya Sinwar failed to provide the chink of light for opening negotiations that commentators had hoped. On his eleventh visit to the region, US Secretary of State Anthony Blinken seems no closer to securing a ceasefire despite headlines announcing progress, as was the case on his last visit.
Indeed, according to news just breaking on Sky News, Blinken has had to take cover in a bunker after air-raid sirens went off over Tel Aviv on Wednesday. Eye-witness reports also tell of how the Israeli military has begun attacking the ancient city of Tyre on Lebanon’s Mediterranean coast, after issuing a warning to residents to evacuate their homes.
Additionally, more – not less – conflict is expected as the Israelis prepare for an anticipated retaliatory attack on Iran. Their plans appeared to gain greater urgency on Monday 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 extends uptrend to new highs
Gold rallies ever higher, breaching above the $2,750 mark and round-number, psychological barrier. The yellow metal is in a steady uptrend on all time frames (short, medium and long) which given the technical dictum “the trend is your friend” favors more upside. After having reached the $2,750 target it is now likely to set its sights on the next big-figure level at $3,000.
XAU/USD Daily Chart
The Relative Strength Index (RSI) is overbought, however, advising long-holders not to add to their positions because of the 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 might be evolving. Support lies at $2,750, $2,700 (key round-number levels) and $2,685 (September high).
Gold’s overall strong uptrend, however, suggests that any corrections will probably be short-lived, and afterward, the broader bull trend will 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.