Gold prices rose from $2,638 to $2,659 due to escalating tensions between Israel and Iran and increasing US Treasury yields. This increase occurred as the US Dollar Index (DXY) rose by 0.35%, with 10-year Treasury yields climbing to 3.84%, which tempered market expectations for a significant rate cut in November. The XAU/USD is currently trading at $2,659.
The rise in gold prices was driven by fears surrounding the Israel-Iran conflict and a stronger US Dollar. Additionally, bets on aggressive policy easing by the Federal Reserve faded, leading to higher US yields. Meanwhile, Wall Street saw losses amid increased geopolitical risk, with Israel advancing its military into Lebanon despite Iran’s recent missile attack. US President Joe Biden’s public comments on potentially attacking Iranian oil facilities also contributed to the rise in gold prices.
US labor market data showed softening, with an increase in the number of people filing for unemployment benefits. However, the Institute for Supply Management (ISM) reported better business activity in September compared to August. Factory orders for August contracted, with traders anticipating increased volatility in the financial markets following the release of the latest US jobs report on Friday.
Federal Reserve officials have stated that the natural employment rate has shifted lower, with the labor market reaching full employment. The focus is now on lowering rates over the next 12 months to reach a neutral position. US Treasury yields continued to rise as traders lowered their expectations for a significant rate cut in November, with the US Dollar Index increasing by 0.35% to 101.95.
Gold prices maintained gains as US data hinted at further easing, with US Initial Jobless Claims rising above estimates and ISM Services PMI expanding in September. Factory Orders for August contracted, and the upcoming Nonfarm Payrolls report is expected to show a slight decrease in job creation. The odds of a 25 bps rate cut are at 66.7%, while the likelihood of a larger 50 bps cut has decreased to 33.3%.
Gold price technical analysis indicates that the uptrend remains intact, with potential downside below $2,650. The Relative Strength Index (RSI) suggests bullish momentum despite recent flattening. Gold prices may trade within familiar levels, with support at $2,650 and resistance at $2,685. Central banks remain major gold holders, with high gold reserves contributing to the perceived strength of economies and currencies. Geopolitical instability and economic recessions can drive gold prices higher, while its inverse correlation with the US Dollar and Treasury yields impacts its movement.
