Gold prices continued to rise for the third consecutive day. Geopolitical risks continued to support demand for safe-haven asset gold. Expectations of a hawkish Federal Reserve, rising US Treasury yields, and a stronger US dollar limited the upside.
Influenced by the escalating risk of the Middle East conflict, gold prices gained strong momentum this Wednesday, soaring to the highest level since early August, around $1,962-$1,963. However, the rally in the non-yielding yellow metal was limited as the Fed's expectation of keeping higher rates for a longer period supported US Treasury yields, further restraining the gains. Additionally, a rebound in the demand for the US dollar triggered some profit-taking at high levels, resulting in a minor pullback.
Nevertheless, the pullback lacked follow-through and stalled around $1,938. The geopolitical tension continued to drive inflows into safe-haven funds, allowing gold to close with gains for the third consecutive day on Thursday. However, the bulls seemed reluctant to take aggressive bets and preferred to remain cautious before Federal Reserve Chair Jerome Powell's speech. Traders will look for new clues regarding the Fed's future interest rate path, which, in turn, would drive a stronger US dollar and provide meaningful impetus for gold.
Safe-haven gold prices continue to be supported by concerns that the Israel-Hamas conflict could spread to other parts of the Middle East.
According to reports, an explosion occurred at a hospital in Gaza, resulting in hundreds of Palestinian deaths, leading Egypt and Palestinian leaders to cancel the summit with US President Biden.
The Times reported that Israeli Prime Minister Netanyahu won private support from President Biden and would continue launching ground attacks on Gaza.
Biden stated that the US would ensure that Israel has the weapons necessary for self-defense, and the atrocities committed by Hamas make ISIS seem more rational.
Optimistic US retail sales data released on Tuesday indicated a strong performance of the US economy at the end of the third quarter, raising expectations for third-quarter Gross Domestic Product (GDP).
These data also heightened concerns about sustained high inflation, which could keep the Federal Reserve's hawkish stance and maintain higher rates for an extended period.
This, in turn, resulted in further support for the US dollar through rising US Treasury yields, limiting gold's upside.
The benchmark 10-year US Treasury yield climbed to a new 16-year high and approached the psychological level of 5%.
Investors are now looking for short-term catalysts from US weekly initial jobless claims, Philadelphia Federal Reserve manufacturing index, and existing home sales data.
Fed Chair Jerome Powell's scheduled speech remains the focus of the market, with close attention to clues regarding the future interest rate path.
Technical Analysis
Gold appears ready to build on its recent strong upward momentum. From a technical standpoint, overnight gold prices continued to break above the 200-day Simple Moving Average (SMA) and subsequently breached the supply zone around $1,947-$1,948, seen as a new trigger point for the bulls. Furthermore, the oscillators on the daily chart remain in positive territory, far from overbought levels, indicating minimal resistance to the upside for gold. Nonetheless, a prudent approach would be to wait for some follow-through buying after the overnight swing high (around the $1,962-$1,963 region) and then push further upwards. At that point, gold could accelerate towards the midline resistance at $1,982, potentially reclaiming the psychological level of $2,000 for the first time since May.
On the other hand, a weak downside below the $1,948-$1,947 region may find suitable support near the 200-day moving average (currently around $1,930). Following closely behind is the 100-day moving average located near $1,922 before the strong support zone for gold around $1,930. If convincingly breached, the bullish outlook would be negated, favoring bearish traders in the short term.