GOLD PRICE OUTLOOK

• Gold prices have been rallying this month despite the surge in U.S. Treasury yields
• Bond market dynamics are taking a back seat as trades shift their attention to geopolitics.
• This article looks at XAU/USD’s key levels to watch in the near term

U.S. bond yields have been on a bullish tear recently, skyrocketing across the Treasury curve. The 10-year note, for instance, has soared past 4.95%, reaching its highest level since 2007. Against this backdrop, the U.S. dollar, as measured by the DXY index, has maintained a largely positive bias, trading near its best levels since late 2022.

Despite the unfriendly landscape for precious metals, gold prices (XAU/USD) have managed to increase by roughly 8% from their October lows. Although the main fundamentals remain relatively bearish for bullion, geopolitics has become a major driver of strength in recent days following the Hamas attacks in Israel.

Delving into specifics, traders are concerned that the Middle East situation may get worse before it gets better. The dominant view is that Israel will soon launch a ground invasion of the Gaza Strip in response to the recent terrorist events, a move that has the potential to increase tensions and draw other actors into the conflict, such as Lebanon or Iran.

Any escalation of the Israeli-Hamas clash could raise the temperature in the region, creating volatility and heightened uncertainty. Gold tends to thrive in turbulent environments, so it would not be surprising to see further short-term gains, especially if fear grips the markets. In this particular setting, changes in yields may lack substantial impact.

In terms of technical analysis, gold futures have embarked on a solid rally this month, successfully breaching several key levels. After the latest moves, XAU/USD is steadily approaching resistance in the $1,985, created by the 61.8% Fib retracement of the May/October slide. Traders should watch price action closely in this region, considering that a breakout may set the stage for a retest of $2,015.

On the flip side, if sentiment improves and the risk premium on safe-haven assets fades, XAU/USD could correct sharply lower, especially with yields at multi-year highs. In the event of a pullback, support is located around the 200-day simple moving average at $1,940. On further weakness, sellers may initiate an assault on the $1,920 floor.

GOLD PRICE CHART (FRONT-MONTH FUTURES)

https://www.dailyfx.com/news/gold-price-forecast-geopolitics-steal-show-from-yields-as-xau-usd-eyes-breakout-20231019.html