No matter how chaotic gold’s dynamics may appear, they indeed follow a set of rules. XAU/USD quotes usually decline when Treasury bond yields rise and the USD index strengthens. Precious metals cannot compete with interest-bearing debt instruments and essentially act as an anti-dollar. However, everything was turned upside down in October. Gold broke the rules, and the reasons need to be sought in geopolitics.
The 7.5% surge of XAU/USD from October lows happened so quickly that it left most investors breathless. Terrorist attacks by Hamas on Israel, along with Israel’s subsequent threats to invade Gaza, boosted demand for gold as the primary safe-haven asset. Neither Treasury bonds nor the Japanese yen, Swiss franc, or the U.S. dollar can compete with it.
Speculators also played a part in the sharp rise in gold. In the week leading up to October 10, they became net sellers of gold futures for the first time since November 2022. The swift unwinding of short positions by hedge funds propelled XAU/USD quotes from the abyss to a lofty peak.
Dynamics of speculative positions on gold
Gold turned a blind eye to strong macroeconomic statistics from the United States. Retail sales and industrial production exceeded Bloomberg experts’ expectations, allowing Goldman Sachs to raise its GDP estimates for the third quarter to 4%. Based on these indicators, as well as non-farm payrolls and inflation, the U.S. economy is gaining momentum. This increases the likelihood of the Federal Reserve’s monetary tightening cycle resuming in December or January to nearly 50%, which theoretically should put pressure on precious metals. Especially amid rising Treasury bond yields to levels not seen since 2007 and a strong U.S. dollar.
Gold has forgotten about its old drivers of price changes. The focus of investors has shifted to the Middle East. However, while oil reacts sensitively to events in Israel, precious metals simply continue to rise. The explosion in a Palestinian hospital and the Arab leaders’ rejection of a summit with U.S. President Joe Biden are viewed as an escalation of the conflict, and the visits of American and European leaders as its de-escalation. Few believe that during their stay in Jerusalem, Israel will launch a ground operation against Gaza.
The further fate of XAU/USD will depend on the situation in the Middle East. Involvement in armed conflict by Hezbollah and Iran could drive gold prices above $2,000 an ounce.
From a technical standpoint, a critical moment is approaching for the precious metal. After a clear working out of the Shark pattern and its transformation into 5-0, a pullback to the last downward wave is happening. If the 50% Fibonacci level does not stop the bulls, we can expect a continuation of the rally to 61.8% and 78.6%. We are talking about price levels of $1,978 and $2,025 an ounce. Thus, successfully breaking through the resistance at $1,949 would be a reason to add to long positions formed from $1,833 an ounce.
The material has been provided by InstaForex Company – www.instaforex.com
No matter how chaotic gold’s dynamics may appear, they indeed follow a set of rules. XAU/USD quotes usually decline when Treasury bond yields rise and the USD index strengthens. Precious metals cannot compete with interest-bearing debt instruments and essentially act as an anti-dollar. However, everything was turned upside down in October. Gold broke the rules, and the reasons need to be sought in geopolitics.
The 7.5% surge of XAU/USD from October lows happened so quickly that it left most investors breathless. Terrorist attacks by Hamas on Israel, along with Israel’s subsequent threats to invade Gaza, boosted demand for gold as the primary safe-haven asset. Neither Treasury bonds nor the Japanese yen, Swiss franc, or the U.S. dollar can compete with it.
Speculators also played a part in the sharp rise in gold. In the week leading up to October 10, they became net sellers of gold futures for the first time since November 2022. The swift unwinding of short positions by hedge funds propelled XAU/USD quotes from the abyss to a lofty peak.
Dynamics of speculative positions on gold
Gold turned a blind eye to strong macroeconomic statistics from the United States. Retail sales and industrial production exceeded Bloomberg experts’ expectations, allowing Goldman Sachs to raise its GDP estimates for the third quarter to 4%. Based on these indicators, as well as non-farm payrolls and inflation, the U.S. economy is gaining momentum. This increases the likelihood of the Federal Reserve’s monetary tightening cycle resuming in December or January to nearly 50%, which theoretically should put pressure on precious metals. Especially amid rising Treasury bond yields to levels not seen since 2007 and a strong U.S. dollar.
Gold has forgotten about its old drivers of price changes. The focus of investors has shifted to the Middle East. However, while oil reacts sensitively to events in Israel, precious metals simply continue to rise. The explosion in a Palestinian hospital and the Arab leaders’ rejection of a summit with U.S. President Joe Biden are viewed as an escalation of the conflict, and the visits of American and European leaders as its de-escalation. Few believe that during their stay in Jerusalem, Israel will launch a ground operation against Gaza.
The further fate of XAU/USD will depend on the situation in the Middle East. Involvement in armed conflict by Hezbollah and Iran could drive gold prices above $2,000 an ounce.
From a technical standpoint, a critical moment is approaching for the precious metal. After a clear working out of the Shark pattern and its transformation into 5-0, a pullback to the last downward wave is happening. If the 50% Fibonacci level does not stop the bulls, we can expect a continuation of the rally to 61.8% and 78.6%. We are talking about price levels of $1,978 and $2,025 an ounce. Thus, successfully breaking through the resistance at $1,949 would be a reason to add to long positions formed from $1,833 an ounce.
The material has been provided by InstaForex Company – www.instaforex.com
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