In the wake of a significant surge on Friday, gold prices are now undergoing a minor retreat, marking a natural corrective phase. The retracement, despite a relatively subdued US Dollar, can be attributed to a recent uptick in US Treasury bond yields, signaling a potential dampening of the previous rally.
Friday’s rally was spurred by a flight to safety trend amid mounting geopolitical uncertainties, particularly the Israel-Hamas conflict. Investors, wary of potential escalations in the region, scrambled to cover their short positions, propelling gold to a three-week high at $1,933 from the $1,832 mark.
Furthermore, the gold market found support in the absence of significant demand for US Treasuries, alongside a temporary pause in the US Dollar’s recovery due to dovish sentiments from the Federal Reserve.
However, the ongoing conflict in the Middle East remains a key factor shaping the market sentiment. Israeli Prime Minister Benjamin Netanyahu’s commitment to “demolish Hamas” and the ensuing response from the US and its allies, coupled with Iran’s warnings, continue to influence the market’s cautious stance.
Looking ahead, the gold market is eagerly anticipating the US Retail Sales data and statements from the Federal Reserve, with a close eye on any potential shifts in the interest rate outlook. While the market seems to be factoring in a likely pause in the next Fed rate hike, a 30% probability of a rate hike in December, as per the CME Group’s FedWatch tool, suggests some lingering uncertainty.
Despite the recent correction, the gold price is still oscillating around significant moving averages, with the 14-day Relative Strength Index (RSI) indicating a notable uptrend. However, the failure to sustain above the 200-day Moving Average (DMA) has triggered a corrective phase, potentially testing the 50 DMA at $1,901.
Should the downward momentum persist, the retracement might extend towards the 21 DMA at $1,880. On the flip side, a breakthrough past the 100 DMA at $1,923 could lead to a retest of the critical 200 DMA hurdle at $1,929, possibly paving the way for a retest of the three-week high at $1,933. The market remains poised for further developments, both from the geopolitical landscape and the upcoming Fed announcements.