- The price of Gold reached a high of $2,417 an ounce following the escalation of the conflict between Israel and Iran, with investors seeking safety.
- Prices stabilized around $2,394 after Tehran indicated it had no immediate plans to retaliate, calming initial fears.
- US Treasury yields and falling US Dollar support Gold's gains, although Fed officials hint that monetary policy will remain restrictive.
Gold price hit a five-day high above $2,400 amid an escalation of the Middle East conflict between Israel and Iran. The Israeli attack on Iran on Friday pushed bullion to its daily high of $2,417 a troy ounce, as ebbs and flows flock to safety amid the uncertainty of the outcome. However, the rally was short-lived as Tehran said it had no plans to retaliate.
The XAU/USD pair is trading at $2.394, posting gains of 0.70%, as traders digested Friday's events. Apart from this, falling US Treasury bond yields and the Dollar are keeping the gold metal afloat. This is despite recent hawkish comments from Federal Reserve (Fed) officials, who have adopted a more neutral stance, suggesting that the disinflationary process has stalled.
On Friday, Chicago Fed President Austan Goolsbee abandoned his dovish stance and declared that inflation growth had “stalled,” adding that “the Fed's current tight policy is appropriate,” words that became echo comments from Bostic of the Atlanta Fed and Williams of the New York Fed, which crossed the news on Thursday.
Raphael Bostic, one of the most hawkish members of the Federal Open Market Committee (FOMC), went further than Goolsbee and Williams' comments, stating that the Fed would not cut rates until the end of the year.
Daily Market Summary: Gold rises on risk-off mood despite Fed comments
- Gold remained supported during the week by geopolitical risks linked to the Middle East conflict following Iran's attack on Israel. The non-yielding metal is on track to post more than 2.25% weekly gains.
- The yield on 10-year Treasury bonds rises 8 basis points in the week and stands at 4.615%. US real yields are also up 8 bps and will likely end the week near 2.215%.
- Data of the week: The strength of US retail sales was the first data that triggered a review of the interest rates set by the Fed. As a result, the yield on the US 10-year note reached a high of 4.696%, a level last seen in November 2023.
- Strong industrial production data for March and strong employment data, with lower-than-expected initial jobless claims, overshadowed the sudden weakness in the housing market.
- Raphael Bostic of the Atlanta Fed said inflation is too high and the US central bank still has some way to go to control it. He added that the Fed will not be able to reduce rates. Previously, New York Fed President John Williams stated that the Fed depends on data and stressed that monetary policy is in a good moment, so he was in no hurry to cut rates. His baseline does not contemplate a rate hike, but he added that the Fed will raise if necessary.
- CME's FedWatch tool shows the first rate cut could come in September, with the odds of a quarter-percentage-point cut at 67%, down from 66% on Thursday.
- The US Dollar Index (DXY), which tracks the evolution of the Dollar against a basket of six other currencies, loses 0.05% and stands at 106.15.
Technical analysis: Gold rises on risk aversion as buyers lose steam
The price of Gold is showing a bullish bias, although it seems that buyers could be losing steam, as Friday's rally to $2,417 was courtesy of risk aversion. The RSI remains at overbought levels but has not broken the latest high, meaning there is a slight divergence between price action and momentum. That could pave the way for a pullback, but the most likely scenario is a continuation of the uptrend.
That said, the first resistance for XAU/USD would be $2,400, followed by Friday's high at $2,417. Breaking this last level would expose the all-time high of $2,431. On the other hand, if XAU/USD heads towards a correction, the first support would be the $2,350 mark, followed by the April 15 daily low of $2,324. Once surpassed, Gold could test $2,300.
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
