Gold (XAU/USD) Analysis

• Gold’s recent lift stalls as markets determine next steps
• Gold volatility rises on conflict – largest move since the regional banking turmoil
• $1875 is the next significant level of resistance on the weekly and daily charts
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Gold’s Recent Lift Stalls as Markets Determine Next Steps

In times of conflict and war, gold tends to witness a spike in value as investors shift away from riskier assets like stocks towards traditional safe haven assets that are more likely to preserve its value or decline at a lesser rate. This recent rotation however appears different as US stocks have actually rallied, not declined. Recent comments from Fed officials around the term premium being observed in the bond market and a weaker US dollar have provided a more dovish landscape for equity market participants looking to recover recent declines.

Investors have also been seen piling into US Treasuries which has helped to lower yields, adding to USD selling pressure in recent sessions. A lower dollar bodes well for gold prices as it provides a discount for non-US buyers.

Gold is highly responsive to both monetary policy developments and geopolitical conflicts. Find out what Q4 has in store for the precious metal by reading our Q4 forecast below:

The gold chart below reveals that the market was indeed due for a reprieve from the aggressive selloff which gained momentum after the Fed confirmed it’s resolve to getting inflation back to 2% by eliminating 50 basis points worth of rate cuts in 2024. The same summary of economic projections also accounted for better-than-expected growth in the US which is likely to add to inflationary pressures, maintaining restrictive monetary policy in the process.

$1875 appears as the most imminent level of resistance and remains an important long-term level for the precious metal (see weekly chart). Nevertheless, today’s price action sees gold take a slight breather before charting the next move. A weaker dollar and lower treasury yields could contribute towards an extended bullish move but the main driver remains the extent of the fighting in the Middle East. Israel has promised to step up efforts in retaliation to attacks from Hamas meaning hopes of peace returning to the region appear slim, opening the door to further upside in gold. Support rests all the way down at the psychological $1800 level.

Gold Daily Chart

Source: TradingView, prepared by Richard Snow

Gold Volatility Rises on Conflict – Largest Move Since the Regional Banking Turmoil

30-day expected gold volatility has risen, the first real lift since the banking turmoil earlier this year. In fact, volatility across the board has risen off recent lows whether you observe stock market volatility (VIX) or bond market volatility (MOVE).

Gold Volatility Index (GVZ)

Source: TradingView, prepared by Richard Snow

The weekly gold chart helps to frame the recent lift in the context of a longer-term downtrend. Gold prices threatened to achieve a bullish breakout after trading and closing above the descending channel on the weekly chart. Since then gold’s value has dropped on fears of the Fed towing the line on its ‘higher for longer’ stance. The chart also shows the significance of $1875 as the next decision level for the metal as it has halted prior surges.

Gold Weekly Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX