Gold prices surged to unprecedented levels on Tuesday, driven by robust demand from China and a declining U.S. Dollar. The precious metal, which is largely priced in dollars, reached new all-time highs in the $2,520 range, bolstered by growing geopolitical uncertainties in the Middle East.
China’s Increased Demand Fuels Gold Rally
The rally in gold prices was significantly influenced by increased safe-haven demand from China. The People’s Bank of China (PBoC) recently issued new gold import quotas to banks, sparking speculation of a renewed wave of demand. According to brokerage firm SP Angel, this move has heightened interest in gold as a secure investment option.
The demand surge comes on the heels of a decline in Chinese 10-year government bond yields, which reached record lows last week. As yields dropped, Chinese investors sought alternative safe-haven assets, with gold emerging as the favored choice.
Dollar Weakness Provides Additional Boost
The weakening U.S. Dollar also played a crucial role in gold’s ascent. The U.S. Dollar Index (DXY) dropped to 101.76 in early trading on Tuesday, marking an eight-month low. This decline has been positive for gold, as the two assets typically exhibit a strong inverse correlation.
Geopolitical Tensions Add to Gold’s Appeal
Geopolitical risks, particularly in the Middle East, have further strengthened gold’s position as a safe haven. Efforts to broker a peace agreement in the region, led by U.S. Secretary of State Antony Blinken, have stalled. While Israel expressed willingness to agree, Hamas demanded that the agreement include a permanent ceasefire rather than a temporary one as currently proposed. The situation escalated when Hamas claimed responsibility for a recent suicide bombing in Tel Aviv, raising the possibility of an Iranian attack on Israel.
Technical Analysis: Gold Approaches Key Breakout Target
From a technical perspective, gold’s breakout from a range it had been confined to since July has set it on course to reach the $2,550 mark. This target is derived from the 0.618 Fibonacci ratio, applied to the height of the previous range and projected upward.
However, the gold price has entered the overbought territory on the Relative Strength Index (RSI), suggesting a potential pullback. Should a correction occur, gold could retreat to support levels around $2,500 before resuming its upward trajectory.
Despite the possibility of short-term fluctuations, gold remains in a strong uptrend across short, medium, and long-term timeframes, indicating that the rally is likely to continue.