Gold edges higher on haven demand

Gold prices edged higher on Wednesday, climbing to the $1,875 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. 

Risk sentiment improved this week, however, despite the continued crisis in Israel. The US Federal Reserve hinted that it has reached its rate ceiling, boosting the economic world economic outlook. Improved risk sentiment halted gold’s rally on Tuesday, but gold prices continued to rise on Wednesday. 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 edged lower on Wednesday, with the dollar index dropping to 105.7. US bond yields declined on reduced rate hike expectations with the US 10-year bond yielding approximately 4.56%.            

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.

TRADE GOLD

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: