The announcement of the possibility of a ground invasion by Israel into the Gaza Strip has somewhat calmed market and investor concerns, alongside the recovery of the US dollar. Recently, the price of gold XAU/USD experienced selling pressure yesterday, reaching the support level of $1953 per ounce after gains earlier in the week to reach the psychological historical peak of $2000 per ounce. Nearby, the price of gold XAU/USD has since stabilized around the resistance level of $1977 per ounce at the time of writing this analysis, despite the weakness in the US dollar and treasury bond yields. Clearly, the yellow metal found significant support in the conflict between Israel and Gaza, with investors participating in fear trade.
Silver/Gold Correlation
- So far, gold has achieved weekly gains of 3% and has risen by about 9% since the beginning of the year.
- Over the past 12 months, gold XAU/USD prices have risen by 20%.
- In contrast, silver, which is gold's sibling commodity, fell by around $23 at the start of trading this week.
- On the other side, silver prices had risen by 3% last week but have declined by over 4% so far this year.
Generally, the metals market was disrupted by news of Israel's postponement of its ground invasion of Gaza. However, the damage was done as the Israeli military intensified its shelling of targets on three fronts. One of these was an airstrike in the West Bank. It is unclear whether Israel will proceed with its aggressive military retaliation efforts. In the meantime, humanitarian aid is flowing into the Gaza Strip as the world looks to alleviate the disaster that has affected more than two million people. substantially, the countries around all over the world are concerned that tensions in the Middle East will escalate into a wider conflict, including the participation of Iran and Saudi Arabia.
Unfortunately, gold prices were unable to benefit from the weakness in Treasury bond yields, with the yield on 10-year bonds falling by 7.4 basis points to 4.85%. Similarly, the yield on two-year bonds fell by 1.7 basis points to 5.067%, while the yield on 30-year bonds fell by 8.2 basis points to 5.005. As is well known, gold is sensitive to movements in interest rates because it can affect the opportunity cost of holding non-yielding bullion.
Another factor that is impacting gold is the decline in the US Dollar Index (DXY), which is a measure of the US currency against a basket of other major currencies. Recently, The DXY fell to 105.62 from the open at 106.16. A weaker dollar is typically beneficial for commodities priced in dollars as it makes them cheaper for foreign investors to buy.
So far, the US economy has remained remarkably resilient in the face of much higher interest rates. Therefore, a strong Labor market and US household spending have helped to keep the economy on track. However, some investors are concerned that even if interest rates and yields do not rise any further, they are still high enough to eventually drag the US economy into a recession if the Federal Reserve continues to tighten monetary policy.
Regarding the metal markets, copper futures rose to $3,582 per pound. Contrarily, Platinum futures fell to $902.80 an ounce. Finally, Palladium futures rose to $1,130.00 per ounce.
Gold price forecast for XAU/USD today
We still expect the upward trend in the price of gold (XAU/USD) to continue as long as the conflict continues in the Middle East. Clearly, it seems that the situation will take a longer time, and therefore any decline in the price of gold will provide an opportunity to think about buying. Currently, the closest support levels for gold are 1948 and 1930 dollars, respectively. On the other hand, the opportunity for bulls to move towards the psychological resistance level of $2,000 per ounce is strongly present.
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