Gold prices have steadied over the past week, showing signs of stability amidst recent geopolitical developments in the Middle East. There’s a possibility that gold has attracted safe-haven investments since the start of the week.
There are some fundamental challenges laid ahead for the precious metal as well as major financial releases that could impact its price direction in the coming days.
Correlation Between USD And Gold
According to the IronFX Team, in the past week, the traditional belief that gold’s price moves inversely to the US dollar (USD) hasn’t held true. Gold prices actually declined during this period, despite a slight decrease in the value of the USD. Interestingly, US bond yields also decreased around the same time.
This suggests that the usual pattern of gold prices rising when US bond yields fall, indicating a preference for safe-haven assets, wasn’t evident recently.
However, if US bond yields start to rise significantly, investors may shift their focus toward these bonds due to their interest-bearing nature, which could become more attractive.
This shift could lead to outflows from gold, given that gold does not generate interest, potentially putting downward pressure on its price.
The Team stated that “we expect the lack of high-impact financial releases and monetary policy events to have a subdued impact on the aforementioned factors”.
Middle East Tensions Flare Up Again
On Tuesday, May 7, tensions between Israel and Hamas seem to have escalated once again. The most recent development comes, as Hamas has agreed to a Qatari-Egyptian proposed ceasefire agreement, yet the proposal appears to have failed to meet Israel’s expectations.
Thus, following Israel’s rejection of the deal, Israeli forces seized control of the Gazan side of the Rafah border crossing with Egypt, effectively beginning their offensive into the southern part of the Gaza Strip.
Hence, Israel’s renewed offensive into what many international observers may have considered a “red line.”
Yet, the silver lining may be the recent reports that an Israeli delegation will be meeting with Egyptian and Qatari officials within the next few days, to discuss a new ceasefire proposal.
According to the IronFX Team, should tensions escalate again between Israel and its neighbors, “it could lead to safe-haven inflows into gold, thus aiding its price.”
On the flip side, in the event of a ceasefire agreement gold may face safe haven outflows which could weigh the precious metal’s price, as tensions in the region may ease.
April’s US Employment Report
Last Friday, the US Employment report for April was released, revealing some unexpected figures. The non-farm payroll (NFP) number came in at 175,000, lower than economists had predicted, and the unemployment rate rose to 3.9%, surpassing expectations.
These results suggest a slight softening in the US job market, which could ease the aggressive stance of Federal Reserve (Fed) policymakers. This shift in sentiment might provide support for gold prices. Initially, the news of a weaker labor market had a modest impact on gold prices, but any losses were later recovered.
Looking ahead, if Fed policymakers dial back their recent tough stance, it could weaken the US dollar. This scenario typically supports gold prices due to their historically inverse relationship.
Gold’s Technical Forecast
According to the IronFX Team, “Gold’s price tended to continue to stabilize since our last report, confining its price action between the USD 2,280 per Troy Ounce and the USD 2,355 per Troy Ounce.”
“Based on the precious metal’s price action over the past week and given the clear breaking of the lower boundary of the upward channel on the 24th of April, which used to guide gold’s price, we tend to maintain a bias for the sideways motion to continue within the boundaries set by gold’s price action in the past week.”
IronFX Team
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