Gold Report: Tensions in the Middle East continue to subside

Gold at the time of this report, seems to be moving in a downward fashion, in comparison to last week’s report. We note that external shocks in the gold market, appear to be easing, as negotiations between both sides appear to be intensifying, starting with a temporary 4-hour “pause” in select areas in the Gaza Strip on a daily basis. In this report, we aim to shed light on the catalysts driving gold’s price, assess its future outlook and conclude with a technical analysis.

Gold Market Report

Israel War

Tensions in the Middle East appear to be further easing, as negotiations about a potential ceasefire seem to be dominating the airwaves of traditional media outlets. Over the past week, Israel agreed to 4-hour daily “pauses” in fighting inside the Gaza strip, although the “pauses” are only applicable to certain areas each day. Nonetheless, the apparent diplomatic progress seems to be aiding the narrative that a wider regional confrontation could be avoided. As such, given that it appears that the war in Israel will not lead to a destabilization of the Middle East, downward pressures on gold’s price appear to be increasing, given its status as a safe haven asset during times of uncertainty.

However, given the fragile nature of this conflict, we would not be surprised to see tensions flaring up again, which in turn could support the precious metal. In conclusion, we remain vigilant to potential developments in the Middle East which could lead to heightened tensions, yet for now, we believe that regional tensions may continue to de-escalate, leading to safe haven outflows from the precious metal and as such, a decline in the price of gold.

Debt ceiling debacle

Friday the 17th of November, is the reported deadline upon which the US is expected to default on its debt, should no deal be reached between the Republican-led House and the Democratic-led Senate. The potentiality of a government shutdown is the third in a row this year, given such a scenario has been widely discussed. The newly appointed Speaker of the House Mike Johnson (R) proposed a two-step stopgap bill, which has already drawn ire from members of his own party, similar to what former Speaker McCarthy had faced before being ousted from his position.

The third fiscal showdown has already resulted in the US credit rating being downgraded by numerous credit rating agencies, with the most recent one being Moody’s which downgraded the US credit rating from stable to negative. However, unlike last time, it appears that the Republican party is better prepared this time around and as such, the possibility of a government shutdown although possible, it may be avoided with bi-partisan support. In the event of a US Government shutdown, we may see the precious metal gaining, as it is widely considered to be a hedge during times of instability.

Yet, it appears that market expectations for now, are that the government may avoid a shutdown, as was the case previously. Thus, we may see no impact on the precious metal, unless no deal is agreed upon by Friday evening, then we may see the precious gaining some support.

Hawkish Fed Chair Powell aids Gold’s downward trajectory.

Fed Chair Powell, spoke last week and during his remarks, the Fed Chair hinted that the bank would not hesitate to further hike rates if needed. The hawkish undertone of Fed Chair Powell’s speech may have aided in the precious metal’s descent, as gold is widely considered to be inversely correlated with the greenback. Furthermore, the hawkish rhetoric seems to have been re-iterated by other Fed Officials such as Minneapolis Fed President Kashkari, thus aiding the narrative that the Fed may have not reached its terminal rate.

Lastly, market participants may be interested in the US October CPI rates which are due to be released tomorrow, as a gauge of inflationary pressures in the US economy. Should the CPI rates come in higher than anticipated, it may be an indication of a stabilization or even an acceleration in inflationary pressures, which may see the greenback strengthening, as anticipations for another rate hike may increase, leading to further declines for the precious’ price.

On the other hand, should the CPI rates come in lower than expected, we may see the dollar weakening and gold capitalizing temporarily on a weaker greenback, due to their theoretical inverse relationship. As a word of caution, the theoretical relationship between gold and the dollar appears to have weakened over the past few weeks.

Gold – Technical Analysis

XAUUSD 4-Hour Chart

• Support: 1932 (S1), 1880 (S2), 1820 (S3)
• Resistance: 1960 (R1), 2005 (R2), 2050 (R3)

Since our last report, gold’s price appears to have moved in a downward fashion, dropping below the $1950 psychological level, and is currently testing the 1932 (S1) support level. We maintain last week’s bearish outlook for the precious metal, and supporting our case is the downwards-moving trendline which was incepted on the 3rd of November, in addition to the RSI indicator below our 4-hour chart currently running along the figure of 30, implying a strong bearish market sentiment.

For our bearish outlook to continue, we would require to see a break below the 1932 (S1) support line, with the next possible target for the bears being the 1880 (S2) support level. On the other hand, for a bullish outlook, we would like to see a break above the 1960 (R1) resistance level, which would coincide with a break above our downwards moving trendline.

Thus, a break above our downwards moving trendline could imply that the bearish market sentiment may be coming to an end. As such, the next possible target for the bulls may be the 2005 (R2) resistance ceiling. Lastly, for a neutral outlook, we would like to see the precious metal remaining confined between the 1932 (S1) support level, and the 1960 (R1) resistance level.

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Esta informação não deverá ser considerada como aconselhamento ou recomendação ao investimento, mas apenas como comunicação de marketing.

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