Gold Technical Analysis: Risk Aversion Increases Gains

• At the beginning of this week’s trading, the price of gold, implied volatility for gold rose on the Comex, while December futures rose the most since August, due to geopolitical tensions.
• The gold market is also benefiting from a shift in mindset regarding US interest rate expectations.
• US policymakers are rallying around the idea that the recent rise in US Treasury yields – which reversed on Tuesday – could replace additional increases in benchmark interest rates.
• Higher rates are generally negative for non-interest bearing gold.

However, the long-term performance of the bullion price will depend on whether there are deeper economic and financial fallout from the Middle East crisis, Christopher Looney, a strategist at RBC Capital Markets LLC, said in a private note. In September, the bank raised its basic forecast for the metal on the basis that monetary policy would eventually change as economic growth slowed.

“Amidst oil price gains, we also highlight the potential ramifications that associated price inflation and increased uncertainty could have on the Fed and thus on gold,” the analyst wrote. “Given our current outlook for gold and the rise in risks, we may have already seen a quarter-long decline.” annual.”

In general, bond investors have begun betting that the worst-ever decline in US Treasuries may end soon. US 10-year bond yields fell by the most since March after dovish statements from Federal Reserve officials fueled speculation that US interest rate hikes were about to end, while concerns about the war between Israel and Hamas led to increased safe-haven demand. The move was more noticeable than usual as trading in cash Treasuries was closed around the world on Monday due to a holiday in the United States.

For their part, two Federal Reserve officials speaking on Monday expressed the idea that the recent rise in US bond yields may have done some tightening of financial conditions for them.

For his part, Federal Reserve Vice Chairman Philip Jefferson said that he views the increase in Treasury bond yields as potential additional restrictions on the economy, even though the inflation rate is still very high. Fellow policymaker Lori Logan said the recent increase in long-term yields may indicate less need for the central bank to raise US interest rates again. The meeting-date swap now shows a roughly 65% chance the Fed will stay put in December, compared to a 60% chance of another rate hike by then, just a week ago. They are more confident that policymakers will not raise US interest rates in any of the other groupings until mid-2024.

According to the performance on the daily chart below, the price of gold, in addition to the ongoing geopolitical tensions, if the US inflation numbers come in below expectations, it will support bulls a lot. On the other hand, over the same time period, hopes for a rise in the price of gold will evaporate if it declines to the support levels of $1838 and $1820, respectively.

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