Weekly Gold Price Forecast: Declining US Yields and Escalating Tensions Point to Further Gains.

Gold, often considered a safe-haven asset, has experienced a notable surge in prices over the past week, increasing by more than 4%. This surge can be attributed to various factors, including declining US yields and escalating tensions in global geopolitics. In this article, we will delve into the key drivers behind the recent bullish momentum in the gold market and offer a forecast for the upcoming week.

A Shining Start to the Week

Gold kicked off the week with strong bullish momentum, benefiting from the increased demand for safe-haven assets due to rising global concerns. The dovish predictions of the Federal Reserve (Fed) have driven down yields on US Treasury bonds, providing an ideal environment for gold to thrive. As a result, the XAU/USD currency pair managed to break free from a two-week losing streak.

Key Factors Influencing Gold Prices

Geopolitical Tensions

The events of the past week have played a significant role in boosting gold prices. After an unprecedented strike on Israel on October 7, the nation declared war against the Palestinian militant group Hamas. This conflict triggered a rush to gold as a traditional safe-haven asset, leading to a 1.6% increase in gold prices within a single day.

US Bond Market Movements

The US bond markets also saw notable developments during the week. The benchmark yield on US Treasury bonds, which had remained at approximately 4.9% for several years, dropped to below 4.7% as trading resumed after a long weekend. Interestingly, gold maintained its position and stabilized around the $1,860 mark.

Fed’s Monetary Policy

The Fed’s stance on monetary policy has played a crucial role in influencing gold prices. The expectation that the Fed will maintain its policy rate for the remainder of 2023 has led to a decrease in US T-bond yields. This, in turn, has supported the upward trajectory of XAU/USD, pushing it to a two-week high above $1,880. While some Fed officials suggest that a rate hike might still be necessary, the likelihood of a constant policy rate for the year has increased to over 70%.

Inflation Data

On the economic front, the US Bureau of Labor Statistics reported that US inflation, measured by the Consumer Price Index (CPI), remained constant at 3.7% annually in September. The core CPI inflation, which excludes housing rent, decreased slightly to 4.1%. However, a surprising increase in “super core” inflation, tracking changes in core service prices, has posed new challenges. The release of this data led to a more than 3% increase in the 10-year US yield and raised the likelihood of a December rate hike to 40%. Consequently, XAU/USD lost some of its earlier gains.

China’s Trade Surplus

China’s trade surplus figures also influenced the gold market. With a trade surplus of $77.71 billion in September, exceeding market expectations, investors sought refuge in gold. The escalation of tensions in the Middle East, with Israel issuing evacuation orders to over a million Gaza City residents, further drove up gold prices, breaking the $1,900 barrier.

Looking Ahead

As we look to the upcoming week, several key events will likely impact the movement of XAU/USD.

US Retail Sales

Investors will keep a close eye on the release of September retail sales data on Tuesday. A 0.3% monthly increase is expected, following a 0.6% growth in August. However, since this data isn’t adjusted for price movements, its significance may be limited.

China’s GDP

Wednesday’s Asian session will be dominated by China’s third-quarter GDP figures. The Chinese economy is anticipated to grow by 6.3% in the second quarter and 4.4% annually. A weaker GDP estimate could potentially dampen gold demand and lead to a decline in XAU/USD.

Fed’s Blackout Period

Starting on Saturday, October 21, the Fed will enter its blackout period ahead of the policy meeting in November. During this time, Fed officials may attempt to influence the markets. If they continue to emphasize growing yields as a rationale for maintaining the policy rate, US T-bond yields may continue to decrease, providing further support to XAU/USD.

Geopolitical Developments

Geopolitical tensions in the Middle East are expected to persist, benefiting gold. Any escalation in these tensions may drive further gains for XAU/USD, as demonstrated by the substantial increase in prices on Friday.

In conclusion, gold’s recent surge in prices is primarily driven by geopolitical tensions and the dynamics of the US bond market. While these factors have boosted gold, upcoming events such as economic data releases and Fed announcements will play a significant role in determining the future of gold prices.