Gold price started the new week on a negative note and gave up some of its gains from Friday, when it reached a three-week high of $1,932 per ounce. The yellow metal faced some selling pressure as investors booked profits and shifted their attention to the rising US bond yields and the US dollar strength. However, the downside seems limited as the ongoing Israel-Hamas conflict and the dovish outlook for the Federal Reserve interest rates support the safe-haven demand for gold.
Gold price fails to sustain above 200-day SMA
Gold price rallied nearly 3.5% on Friday and recorded strong gains of over 5.2% for the week – the most since March. An escalation in conflict between Hamas and Israeli troops provided a strong boost to the safe-haven XAU/USD. The evacuation deadline issued by the Israeli military to the residents of northern Gaza has already been exhausted. The Israeli military has positioned armoured vehicles and could launch a large-scale ground assault in the Gaza Strip. The Israel Defence Force (IDF) had announced that they are prepared for a coordinated attack involving air, ground, and naval forces. Meanwhile, Iran warned of far-reaching consequences if Israel’s bombardment was not stopped. Israel also faces the possibility of a separate conflict on its northern border with Lebanon after artillery exchanges with the Iran-backed Hezbollah group.
Apart from this, expectations that the Federal Reserve will leave rates unchanged for the second consecutive month in November provided an additional boost to the non-yielding yellow metal. The markets seem convinced that the Fed is nearing the end of its rate-hiking cycle as the US consumer sentiment deteriorated in October, though labour market strength could support consumer spending. The US bond yields remain elevated as investors are still pricing in one more Fed rate hike move by the year-end.
However, gold price failed to find acceptance above a technically significant 200-day Simple Moving Average (SMA), which is currently placed around $1,934 level. This prompted some profit-taking on Monday amid a subdued US dollar price action. The greenback was consolidating its gains after reaching a six-month high of 105.47 against a basket of major currencies on Friday.
Gold price could attract fresh buyers near $1,900 mark
Despite the pullback, gold price remains well supported by the geopolitical tensions and the uncertainty over the Fed’s future monetary policy stance. Traders might also prefer to wait for fresh cues from important macroeconomic data from China – the world’s second-largest economy – before placing fresh directional bets on gold price.
According to technical analysis, gold price could find some support near the 100-day SMA, which is currently located around $1,900 level. A convincing break below this level could open the door for further weakness towards $1,880 and $1,860 levels. On the flip side, a sustained move above $1,934 could trigger a fresh rally towards $1,950 and $1,970 levels.
Some of the factors that could influence gold price in the near term are:
- The outcome of the diplomatic efforts to end the Israel-Hamas conflict
- The developments in Ukraine-Russia standoff
- The Bank of England interest rate decision on Thursday
- The US weekly jobless claims and other minor reports
Gold price outlook: Bullish or bearish?
The overall outlook for gold price remains bullish as long as it holds above $1,900 level. The metal could benefit from its safe-haven appeal amid rising geopolitical risks and inflationary pressures. The Fed’s dovish stance could also keep a lid on the US dollar strength and support gold price.
However, gold price could face some headwinds from the rising US bond yields and the expectations of another Fed rate hike by December. A strong US dollar could also weigh on gold price as it makes it more expensive for holders of other currencies.
Therefore, gold price could trade in a range-bound manner in the near term, with a slight bias to the upside.
