- Gold price jumps as Middle East escalation offsets Fed’s ‘higher for longer’ rate view-led concerns.
- US Dollar rises on risk-aversion but falling US Treasury yields limit the upside.
- Gold price eyes a fresh record high amid a potential triangle breakout on the 4H chart.
Gold price is trading close to $2,400 early Friday, reversing from a fresh five-day high reached at $2,418 earlier in the Asian session. Despite the pullback, Gold price remains on track to book the fifth weekly gain in a row.
Israel-Iran escalation steals the show
The latest leg higher in Gold price was mainly driven by mounting fears over a widespread regional conflict in the Middle East after ABC News confirmed, citing a US official, that Israel fired missiles on Iran’s central city of Isfahan.
Iran's Fars news agency said an explosion was heard at an airport in the central city of Isfahan but the cause was not immediately known. Several Iranian nuclear sites are located in Isfahan province, including Natanz, the centerpiece of Iran’s uranium enrichment program, per Reuters.
On these reports, a sudden flight to safety mode took over the financial markets and investors flocked to the traditional safe haven in Gold, driving the bright metal back above the $2,400 mark.
The US Dollar upside gained traction on risk-aversion but the gains seem limited amid a sell-off in the US Treasury bond yields, sponsored by the increased demand for the US government bonds. Therefore, Gold price continues to stay afloat on mounting geopolitical risks.
However, Iran appears to be downplaying the Israel attack, as an Iranian official stated that "there's been no airstrike in Isfahan or other parts of the country. They only made a failed and humiliating attempt to fly quadcopters, and they were all shot down." This denial by Iran could be capping the Gold price rally, for now.
Traders will closely monitor the developments surrounding the Israel-Iran conflict, which could keep Gold price largely supported.
On Thursday, Gold price stood resilient to growing bets of the US Federal Reserve (Fed) potentially to adopt a ‘higher rates for longer’ stance amid sticky inflation and a robust labor market. Commentaries from Atlanta Fed President Raphael Bostic and New York Fed President John Williams endorsed the hawkish Fed narrative.
Bostic said that the “pathway to 2% inflation will be slower than people expect, and bumpy.” He further said that “I'm comfortable being patient and that “I'm not in a mad dash hurry to get there.” Meanwhile, Williams noted that "monetary policy is in a good place,” adding that "I don't feel the urgency to cut rates."
Gold price technical analysis: Four-hour chart
Gold price is teasing an upside break from a symmetrical triangle carved out on the four-hour chart early Thursday, awaiting a candlestick closing above the $2,381 level to validate the bullish breakout.
At that level, the 21-Simple Moving Average (SMA) aligns, making it a strong resistance level.
Should the triangle breakout be confirmed, a test of the record high at $2,432 will be inevitable, as Gold buyers look to hit a fresh lifetime high. The Relative Strength Index is pointing north above the midline, implying more gains could be in the offing.
In case, buyers fail to sustain at higher levels, Gold price could retrace toward the initial resistance-turned-support at $2,381. A sustained move below that level will prompt sellers to challenge the $2,365 area, where the 50-SMA coincides with the triangle support line.
The next relevant cushion for Gold price is seen at the April 15 low of $2,324, below which the $2,300 round figure would be at risk.
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.
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