What to look for in gold price?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold prices have experienced a serious surge this week as traders have reacted to anchored geopolitical tensions that happened after the renewal of a war between Israel and Palestine. For traders, this is an event of significant importance because there are chances that the war could easily spill beyond the current boundary. This is because the US has thrown its full weight behind Israil and supported the actions of the Israeli President. There has also been an echo of a similar message from the UK, France, Germany, and others. However, what bothers traders and investors is that the stance that China, Russia, Iran, and Saudi Arabia have adopted on the back of the current escalation of the situation between Israel and Palestine is different to a large extent. China and Russia made it very clear, along with Jordan, that Palestine should be a sovereign state that should exist alongside Israel.
Traders are worried that the current stance adopted by China is completely opposite to that of the US, and this means that current tensions are more than likely to flare up from here onwards. The US and its allies are already involved in one war, and that is in Ukraine, and involvement in another war is going to have a much bigger impact, especially if the situation escalates beyond the current situation. This means that gold will become the ultimate safe haven asset for traders, and most traders are favouring gold mainly due to this.
In addition to this, traders are also concerned about the massive volatility in US Treasury yields, which currently seems to be a one-way trade that is moving to the upside with some little retracement. Traders think that the Fed will have to increase the interest rate in order to bring inflation down. The rise in US Treasury yields presents a threat to the US debt market's reputation, which many consider safe.
As for today, the focus is mainly on the FOMC minutes, which will be released at 7 p.m. UK time. It is widely anticipated that the Fed may bring its hawkish side to light today. Looking at the gold chart below, it shows that there has been a decent move to the upside, and this move could fade if the Fed today shows its hawkish side. They can do this by indicating a possibility of more interest rate hikes, which could move the dollar index higher and put pressure on the gold price.
From a technical trading perspective, the gold price is still trading below an important resistance level of 1,900, which many traders believe is the key level for the bulls to be fully confident about the current rally. If the current momentum begins to fade, we could see the price losing its momentum which began this week, and we could retest two important support levels: the support at 1850, followed by the support level of 1817.
Chart by AvaTrade
To conclude, gold prices are likely to remain highly volatile, and today’s FOMC event could bring some retracement for the price. However, on the fundamental side, traders should continue to pay attention to escalated tensions between Israel and Palestine and possible tensions between the US and China.