Amid escalating tensions in the Middle East, the price of gold (XAU/USD) has been making a strong recovery, aiming to recapture a five-month high. The ongoing Israel-Palestine conflicts, coupled with fears of a wider regional conflict, have fueled the demand for the safe-haven precious metal. Meanwhile, rising long-term US Treasury yields had briefly exerted downward pressure on gold, but the focus has now shifted to key economic data set to be released this week.
Investors are eagerly awaiting the growth rate figures for the July-September quarter, which will have implications for future interest rates. A positive growth rate would signal robust labor market conditions, strong consumer spending, and overall economic recovery despite the Federal Reserve’s tight monetary policy.
In the face of mounting tensions between Israel and Palestine, fears of a broader Middle East conflict persist. The potential plans for a ground invasion by the Israeli army have gained traction following the provision of humanitarian aid to Gaza civilians and the safe release of hostages. Furthermore, concerns about Iran’s intervention in the conflict loom large, as expectations of sanctions on both Palestine and Iran could potentially impact revenue streams that fund the Hamas military.
Although the gold price experienced a slight retreat after reaching a five-month high near the psychological resistance level of $2,000.00, investor focus has now shifted to forthcoming economic data releases. Notably, rising long-term US Treasury yields had briefly impacted the gold price, with investors closely monitoring Q3 Gross Domestic Product (GDP) numbers, preliminary S&P Global PMIs for October, and core Personal Consumption Expenditure (PCE) price index data for September.
This week, all eyes will be on the publication of the July-September GDP data, which is expected on Thursday. Economists anticipate an annualized growth rate of 4.1%, up from the previous reading of 2.1%. A positive GDP reading would likely sustain hopes of another interest rate hike before the end of 2023.
According to the CME Fed watch tool, traders perceive it as highly probable that the Federal Reserve will maintain interest rates between 5.25-5.50%. The likelihood of an additional rate increase in one of the remaining two monetary policy meetings in 2023 stands at around 24%.
With investors seeking fresh guidance on interest rates, the US Dollar is trading within a narrow range above immediate support at 106.00. Last week, commentary from Fed policymakers had created uncertainty, but Cleveland Fed Bank President Loretta Mester indicated that the central bank is closing in on the peak of interest rates and emphasized the need for adaptability in the face of economic uncertainties. Atlantic Fed Bank President Raphael Bostic, on the other hand, predicted a slowdown due to higher interest rates, but dismissed the possibility of a recession, expressing confidence in the central bank’s ability to control inflation.
From a technical analysis perspective, the gold price has found support below $1,970.00 after a corrective move. With the 20 and 50-day Exponential Moving Averages (EMAs) forming a bullish cross, the precious metal is poised for further upside. Momentum oscillators also indicate a shift into the bullish range, pointing to activated upward momentum.
As tensions persist in the Middle East and economic data continues to drive market sentiment, the price of gold remains in the spotlight, drawing attention from investors seeking a hedge against uncertainty.