Gold prices dipped heavily on Monday, reversing a trend after increased demand for safe-haven assets led to a series of strong gains in the yellow metal, focusing on the possible fallout from Israel’s war and Hamas.
Spot gold fell more than 1% to $1,911/ounce, a loss of $21, while gold futures due in December fell 0.7% to 1,925.15 USD/ounce.
The yellow metal recorded light profit-taking after rising more than 5% last week, as the war between Israel and Hamas began sending investors flocking to safe-haven assets
Stronger-than-expected US inflation data released last week underlined the sustained hawkish stance of the Federal Reserve, which is expected to keep interest rates higher for longer, further adding more pressure on gold bugs.
Price action affirms that the yellow metal had previously seen a clear breakout at $1,900 and a bearish channel on the daily chart, and now it looks like it wants to head towards $1,950.
Today’s pullback towards closer support around $1,911 could allow for a better entry with better reward-to-risk potential.
Gold bugs in the past few months had a rough ride as US interest rates remain high, thus limiting any major upside for the yellow metal this year.
However, the dollar largely remained the safe-haven asset of choice. Capital inflows into the greenback brought it close to a 10-month high last week.
Higher interest rates are bad for gold because they increase the opportunity cost of investing in the yellow metal.
Such narratives have limited any major gains for the yellow metal, even as deteriorating global economic conditions have created increased demand for the safe-haven asset.
Gold’s latest rise over the past few days came after the Israeli government warned more than a million people in northern Gaza late on Thursday to evacuate the area as fighting with Hamas intensifies.
Rumours are growing that Israel is preparing for a major ground attack on Gaza.
Markets are now waiting to see whether the conflict between Israel and Hamas will spread to the Middle East, as Israel prepares a ground offensive in the Gaza Strip.
The dollar also moderated in the early hours on Monday as tensions in the Middle East rose and investors waited for clues about the outlook for US interest rates in the speech.
The dollar remains near one-week highs against the euro and sterling as risk sentiment remains fragile.
Markets expect the Fed to leave interest rates unchanged when it announces its next monetary policy decision in November, according to the CME FedWatch tool, although they estimated there was about a 32% chance of the U.S Fed raising interest rates in December.