Gold prices rallied to a six-day high, battling the $1,850 mark, as geopolitical tensions in the Middle East sent shockwaves through the financial markets. The yellow metal found renewed support from investors seeking refuge amidst escalating conflict in the region, while also grappling with the prospect of a resurgent U.S. dollar.
In Monday’s Asian trading, gold prices hovered around $1,850, witnessing a $15 opening gap as risk-averse sentiment gripped the markets. The weekend’s news of the Middle East conflict, marked by Hamas airstrikes on an Israeli town near the Gaza strip, which led to casualties and hostage situations, set off alarm bells worldwide. In retaliation, Israel declared ‘a state of war,’ further heightening tensions in the region, where Israeli air attacks have caused casualties and extensive damage in the besieged Gaza Strip.
The resurfacing of geopolitical turmoil in the Middle East rattled investor confidence and ignited demand for safe-haven assets, including gold, the U.S. dollar, U.S. Treasuries, and the Japanese Yen. Concerns mounted that the violence could spill over into neighboring regions, particularly with Iran’s support for Hamas and Lebanon’s Hezbollah, raising the specter of a potential closure of the vital Strait of Hormuz. This development also drove up oil prices, adding to global inflationary concerns, as central banks worldwide grapple with taming rising inflation.
The escalating geopolitical crisis not only fueled demand for safe havens but also cast a shadow over global economic growth prospects, compounding the market’s woes. In this climate of uncertainty, gold prices found fresh momentum, building on Friday’s rebound driven by mixed U.S. labor market data.
Initially, the headline U.S. Nonfarm Payrolls (NFP) print caused gold prices to tumble to seven-month lows at $1,811. However, the precious metal mounted a solid recovery, ending the week near $1,835. The NFP data revealed a surprising increase of 336,000 jobs in September, surpassing expectations and revisions to previous figures. Yet, wage inflation showed a slightly slower pace than in August, with Average Hourly Earnings rising 4.2% year-on-year. The Unemployment Rate unexpectedly held steady at 3.8% for the reported month.
Softer wage inflation combined with a cooling labor market in the United States raised doubts about the Federal Reserve’s plans for another rate hike by year-end. This, in turn, weighed on the U.S. dollar and U.S. Treasury bond yields, prompting investors to adjust their positions ahead of this week’s crucial U.S. inflation data release, ultimately supporting gold prices.
The coming days will hinge on developments in the Middle East, which could influence both the U.S. dollar and gold price valuation. Any uptick in the U.S. dollar’s demand as a safe haven asset could limit further gains in gold prices. Thin trading conditions may also contribute to gold price volatility as the Japanese and U.S. markets remain closed on Monday due to national holidays.
While oversold conditions on the Relative Strength Index (RSI) chart provided respite for gold buyers, the challenge of the Bear Cross, with the 100-Daily Moving Average (DMA) crossing the 200 DMA from above, continues to loom over the gold price’s upward trajectory.
To the upside, gold buyers must secure a daily close above the critical $1,850 level. Beyond that, gold prices may challenge bearish commitments at the September 28 and 29 highs of $1,880, with the 21 DMA hovering around that level.
On the downside, immediate support is at the intraday low of $1,833, followed by the crucial support at $1,810. A breach of the $1,800 threshold could open the door to further declines, potentially targeting the psychological level of $1,750 for gold sellers.