Gold prices experienced a remarkable resurgence, bouncing back from a seven-month low as global tensions escalated in the wake of the Middle East conflict. The precious metal surged past the crucial threshold of US$1,860 per troy ounce, bolstered by its traditional safe-haven status and supported by a weakening US dollar. This development has left investors pondering the possibility of higher XAU/USD in the near future.
The recent surge in gold prices coincided with a retreat in the US dollar, coupled with Treasury yields reversing gains witnessed in the previous week. Last Friday, the benchmark 10-year bond had reached a return rate of 4.88%, marking the highest level for this low-risk asset since 2007. However, this week, it has retreated below 4.65% following dovish remarks from Federal Reserve Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan.
Ironically, both central bankers cited the rise in long-end Treasury yields as a factor for adopting a less hawkish stance in the future. As a result, the interest rate market has largely ruled out another Fed rate hike and now anticipates a cut by mid-next year.
Recent developments have also brought increased volatility to the gold market, as indicated by the GVZ index, which measures volatility in the gold price in a manner similar to how the VIX index assesses volatility in the S&P 500.
The recent downturn saw gold prices breaking below the lower band of the 21-day simple moving average (SMA) based Bollinger Band. However, last Thursday, it made a noteworthy move by closing back inside the band, signaling a potential pause in the bearish trend and a subsequent reversal.
For traders and investors, potential resistance levels to watch lie in the 1885 – 1895 range, where a series of breakpoints exist. Additionally, the 21- and 260-day SMAs are situated just below this zone, potentially adding to the resistance.
If gold continues to climb, it will encounter further resistance levels represented by the 100- and 200-day SMAs, located ahead of 1930.
On the flip side, support levels are expected to be around the previous lows of 1810, 1805, 1797, 1785, 1774, 1766, and 1735. The dynamic interplay of geopolitical events, monetary policies, and market sentiment is likely to keep gold prices in focus as investors assess the potential for higher XAU/USD.