29 Oct 2024

• Gold experiences an increase following a decline in oil prices, attributed to Israel's choice to refrain from striking Iranian oil installations during its latest bombing operation.
• The reduction in oil prices is expected to help contain global inflation, resulting in lower interest rates, which bodes well for gold.
• The XAU/USD pair has risen to the upper limit of a short-term range, while continuing to consolidate within a broader bullish trend.

Gold (XAU/USD) is advancing into the $2,750 range on Tuesday, reaching the upper limit of last week’s narrow trading range. The increase in the value of this precious metal is supported by a decline in Oil prices, which fell by 6.0% (Brent) on Monday following reports that Israel targeted only military sites in Iran, leaving its Oil and nuclear facilities unharmed.

The decrease in Oil prices is expected to contribute to lower global inflation levels by reducing fuel and energy expenses, which are significant components of production, transportation, and heating costs. Consequently, this may expedite the decline in global interest rates, enhancing Gold’s appeal to investors as a non-yielding asset.

Gold also remains underpinned by safe-haven flows due to the ongoing conflict in the Middle East and the escalation of the war in Ukraine following the news that North Korea has sent troops to Russia. 

the news that North Korea has sent troops to Russia. 

Gold rally could face resistance on bond rout, US Dollar strength

Dollar Strength

Despite a generally optimistic outlook, Gold may experience limited upward movement due to increasing yields on US Treasury bonds, as markets adjust to the heightened possibility of former President Donald Trump securing the US presidential election. 

A lackluster US bond auction, coupled with the prevailing belief that Trump's proposed lower tax and spending policies will lead to higher inflation and greater US borrowing, is prompting investors to divest from their US Treasury bond holdings. 

The yield on the US 10-year Treasury Note has risen by more than half a percentage point to 4.302%, while the 5-year yield has similarly increased to 4.132%, and the 3-month T-bill yield has climbed by 0.35% to 4.618%. 

The rise in yields is contributing to the strengthening of the US Dollar (USD), with which they are closely linked. This trend may limit potential gains for Gold, as it is predominantly priced and traded in USD.

The rise in yields is contributing to the strengthening of the US Dollar (USD), with which they are closely linked. This trend may limit potential gains for Gold, as it is predominantly priced and traded in USD.

the rise in yields is contributing to the strengthening of the US Dollar (USD), with which they are closely linked. This trend may limit potential gains for Gold, as it is predominantly priced and traded in USD.