Gold prices steady after strong rally

Gold prices remained steady on Monday, oscillating around the $1,919 per ounce level. The dollar weakened on Monday, but gold prices were not significantly affected after experiencing an impressive rally on Friday. If gold prices increase, resistance may be encountered near $1,947 per ounce, while if gold prices decline, support may be found near $1,844 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. Regional escalation into Iran caused gold prices to skyrocket, as the Iranian government issued a stern warning to Israel. The US has in turn warned Iran against further escalation. 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. 

Risk sentiment is improving, however, despite the continued crisis in Israel. The US Federal Reserve has hinted that it has reached its rate ceiling, boosting the economic world economic outlook. Market expectations that US interest rates have peaked are raising the comparative appeal of gold as a haven asset, while the dollar sinks.

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 dipped on Monday and the dollar index dropped to 106.2. US bond yields on the other hand gained strength, with the US 10-year bond yielding approximately 4.71%.             

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. 

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Written by:
Myrsini Giannouli

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