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Gold traders should pay attention to these factors

Commentaries & Views

The US fundamentals have changed dramatically this week, as per the economic data. The gold price chart shows that the bulls are back in the market, and investors are wondering now if this trend will continue, and if it will continue, will it have plenty of tailwind for the price to cross a major level that everyone is looking at?


The gold price experienced a serious surge during the last month, and this was mainly due to a number of factors. For instance, the Israil was waging another brutal war on Palestine, which made traders and investors worried. The main concern among traders was that the war was going to get much bigger than its current trajectory, and the involvement and support of the US for Israil made investors rush for safety. We saw a lot of wind coming out of the dollar index during the last month, and the US Treasury yields also saw somewhat less demand as investors began to look at the US debt with doubts. The US debt rating got further hit by another rating agency, the only rating agency that considered that the US debt was still worth the top dollar.

Stock investors saw the anchored geopolitical tensions as a sign that things were about to become serious, as there were serious concerns that the Arab leaders may use an oil embargo on the US and its allies, which were supporting the US in the Israeli war. The fear that if that embargo sees a day light or if there is further disruption in the oil supply chain, oil prices will skyrocket made traders a lot more nervous, as higher oil prices have a direct impact on the very war that the Fed is fighting: taming inflation.

However, things didn’t really pan out the way that many feared, and last week when the Arab nation leaders met to discuss Palestine, there were plenty on the bench to veto the oil embargo, which brought oil prices lower, reducing the fear among investors that the inflation reading in the US will change their direction again. In addition to this, we also had the fresh US CPI reading this week, which confirmed that any concerns about inflation not coming under control are overblown and there is no need for the Fed to pump the interest rates any further.

 Gold’s Price Action

Gold’s price action is very directly tied to the value of the dollar index, which itself depends on the Fed’s monetary policy and geopolitical tensions. At the beginning of this month, we saw the gold price giving up some of the gains as investors started to re-price the risk associated with the Israel and Palestine situation. This particular action of re-pricing also brought fresh money back into the market, and we saw fresh capital inflow in the market. Remember that a risk on trade is not so good for the gold price, as in a less risky environment, traders prefer to get more exposure to riskier assets and less exposure to gold.

However, things changed dramatically this week for gold traders, and this was mainly due to the fresh US CPI reading, which confirmed that inflation is moving in the right direction and the Fed may not need to do more with respect to the interest rate hikes. This made many traders re-think their strategy about the dollar index, and as a result, we saw a significant drop in the dollar index’s price action, which brought life to the yellow.

Now What?

Assuming that inflation continues to move lower, as the Fed is unlikely to celebrate only one set of readings, it is highly likely that we will see the gold price moving higher. This means that in the coming weeks, if not days, we could see the gold price action breaking above the 2K price mark, which should involve fresh capital. However, if we see too much optimism in the market as dovish monetary policy stances are positively correlated with stock prices, we may not see a significant tailwind for the gold price, which means a period of consolidation between the 1950 and 2,000 price levels.

A graph showing a downward trend line  Description automatically generated with medium confidence

Chart by XTB

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