Gold rises for first time in 4 weeks amid Israel-Hamas conflict. Can it shine some more?

Gold prices have seen a notable weekly gain of more than 3%, marking their first increase in four weeks. This surge is primarily attributed to ongoing geopolitical tensions, notably the recent conflict between Israel and Hamas. The surprise attack by Hamas on Israel has escalated the situation, leading Israel to declare war. The United States has deployed a Carrier strike group in the Mediterranean Sea, serving as a deterrent to countries like Iran, Lebanon, and Syria, potentially escalating the conflict in the region. The major concern is the potential for the situation to evolve into a multi-front war in the Middle East, driving safe-haven demand for gold.

In terms of economic data, the US Consumer Price Index (CPI) revealed a 0.4% month-on-month increase in headline inflation (3.7% year-on-year), higher than those in June and July. Core inflation rose by 0.3% month-on-month (4.1% year-on-year) in September, exhibiting its slowest pace of growth in nearly two years. Housing costs played a significant role in the overall price increase in September, with 2.4% contributing to the 3.7% rise. However, this increase is expected to ease over time, given the time lags in observed rents. Gasoline prices, after falling consistently for seven months, rose by 3% year-on-year in September, contributing to the gains in the headline CPI. Nevertheless, gasoline pump prices in the US have retreated from recent highs due to weak demand following the end of the summer driving season, indicating a potential decline in inflation in the coming months.

The minutes from the Federal Open Market Committee (FOMC) meeting were less hawkish than anticipated. These minutes from September indicate that Fed policymakers agreed to maintain a restrictive policy for some time. They also emphasized the need to balance the risks of overtightening against maintaining inflation on a path toward 2%. The minutes stressed that the committee should proceed with caution, making policy decisions based on data and the balance of risks. While a majority of Fed officials believed that one more rate increase would likely be appropriate, some argued that no further increases would be warranted. The likelihood of another Fed rate hike is diminishing, as policymakers see higher treasury yields as a tool to achieve a soft landing and tighten financial conditions.

The upcoming week will feature a series of speeches by Fed officials, including Fed Chair Jerome Powell, along with the release of US Retail Sales and Industrial Production data. Chinese GDP, fixed asset investment, and Retail Sales data are also expected to draw significant attention. With ongoing geopolitical tensions in the Middle East and fading prospects of another Fed rate hike, we anticipate that gold prices will remain well-supported in the short term.

Regarding price action, COMEX Gold has crossed above the 200-day Simple Moving Average (SMA), indicating strength on the part of the bulls. It is also in close proximity to the resistance of a falling channel, situated near $1968 per troy ounce. If the bulls manage to maintain a weekly closing price above $1968 per ounce, further upside potential may become evident, potentially propelling gold beyond the $2000 per troy ounce mark. Nevertheless, caution should be exercised, as the current premium in gold is largely driven by geopolitical tensions. Any resolution or de-escalation of these tensions could rapidly diminish the premium associated with gold.

(What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

Download The Economic Times News App to get Daily Market Updates & Live Business News.

Top Trending Stocks: Sensex Today Live, SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price