Gold rally paused as risk sentiment rises

Gold prices traded sideways on Tuesday, oscillating around the $1,860 per ounce level. If gold prices increase, resistance may be encountered near $1,880 per ounce, while if gold prices decline, further support may be found near $1,810 per ounce. 

The crisis in Israel has intensified, giving rise to a risk aversion sentiment, and boosting demand for gold. Fears of the Israeli war spreading to the Middle East are increasing the appeal of haven assets such as gold. Gold prices increase in times of war as more traders shy away from riskier assets and invest in assets that are more likely to preserve their value. Gold prices spiked on Monday but failed to maintain a bullish momentum. 

Risk sentiment improved on Tuesday, however, despite the continued crisis in Israel, halting gold’s rally. The US Federal Reserve hinted that it has reached its rate ceiling, boosting the economic world economic outlook. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted on Tuesday, with the dollar index tumbling down to 105.8. US bond yields dropped on reduced rate hike expectations with the US 10-year bond yielding approximately 4.64%.            

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. FOMC members kept interest rates unchanged at a target range of 5.25% to 5.50% at the Fed’s September meeting. 

The Federal Reserve paused rate hikes at its latest meeting but is likely to keep interest rates at high levels for longer to bring inflation down. At the same time, other major central banks are maintaining high-interest rates. Gold prices are under pressure since gold presents a less attractive option as an investment than interest-yielding treasury bonds.

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Written by:
Myrsini Giannouli

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