Gold rallies on safehaven demand, overriding USD strength and soaring bond yields

David Scutt 125
By :  ,  Market Analyst
  • Gold has rallied over $100 since the start of the war between Israel and Hamas
  • It’s an impressive performance given surging real yields and a stronger US dollar

Risk aversion surrounding the conflict between Israel and Hamas continues to power the gold price higher, more than offsetting higher real yields and a stronger US dollar, two well-known adversaries for now.

Soaring US real 10-year yields would normally hammer gold 

Just look at how fast US 10-year real yields have risen, reflecting the yield differential between nominal Treasuries and inflation-protected securities for the same tenor. For an asset offering no yield, and with holding costs if you choose to hold physical bullion, gold has held up remarkably well in what would normally be regarded as an incredibly tough market.real s Oct 19

Source: Refinitiv 

Gold surges over $100 in just over a week

After what appears to have been a liquidation-type event in early October, it’s been nothing but one-way traffic for gold since the onset of the Israel-Hamas conflict, sending prices from support at $1810 to over $1960 on Wednesday, taking out the 200-day MA and several resistance levels in the process.

There’s always a risk of profit-taking sparking a partial reversal following such a rapid repricing. But in the absence of an unlikely positive near-term resolution to the conflict, or a period of market dislocation where it may be offloaded to offset losses in other asset classes, it’s easy to see why gold is in high demand right now, including as a hedge against currency debasement.

Near-term, $1940 has acted as a strong resistance level recently, meaning it may now flip to providing support following the break on Wednesday. On the topside, $1985 is the next level to watch with a break there likely to ignite speculation about a retest of the highs set earlier this year. Below $1940, $1901 and $1885 are the next layers of visible support.

gold oct 19 2

From a fundamental perspective, it’s hard to predict how the conflict in Gaza will play out other than it’s unlikely to be resolved quickly. But from a real yields and US dollar perspective, while both could move higher from current levels, one could only imagine how gold would perform if those headwinds were to shift to tailwinds.

-- Written by David Scutt

Follow David on Twitter @scutty


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