Geopolitical tensions and central bank policies support gold
Gold’s rally is supported by rising geopolitical risks and a dovish stance from major central banks. Notably, the US Federal Reserve is expected to cut interest rates in November, with traders putting a 99% probability of such a move. Meanwhile, the European Central Bank (ECB) cut its key interest rates by a quarter of a percentage point last week, further strengthening gold’s appeal. Low interest rates increase gold’s attractiveness as a non-yielding asset, making it a go-to investment during periods of economic and political turmoil.
Tensions in the Middle East also influence market sentiment. Multiple explosions were reported in Beirut on Sunday as Israel prepared to attack Hezbollah-linked financial operations, contributing to the flight of hundreds of residents. In addition, the looming US presidential election is adding to the uncertainty, with former President Donald Trump and Vice President Kamala Harris in a tight battle in key battleground states.
Despite the bullish environment, rising government bond yields and a stronger US dollar could limit further short-term gains. The yield on the 10-year U.S. Treasury bond rose to 4.11% on Monday, offering an attractive alternative for investors. A stronger dollar, driven by market expectations of higher US interest rates, has also created headwinds for gold. Last week, the dollar index rose 0.55%, while the euro and yen weakened against the dollar. A continuation of this trend could dampen gold’s upside potential.
Profit taking and technical levels to keep an eye on
Some traders expect gold to encounter resistance as profit-taking takes place, especially after the recent rise. Analysts say an important technical level to watch is the 50-day moving average, which if broken could signal a shift in the intermediate trend. Crucially, a breach of the swing bottom at $2,604.39 would indicate a potential trend reversal. Despite the possibility of short-term corrections, many expect gold buyers will wait for a pullback before entering the market at better prices.
Gold price prediction: upside potential, with caution
Looking ahead, gold is likely to remain supported by global uncertainties and accommodative central bank policies. Market analysts see $2,800 as an achievable target by year-end, but the immediate benefit could be limited as investors hold on to their gains. Nevertheless, the broader environment remains supportive for gold, and any short-term dips could provide buying opportunities for traders expecting further gains as economic and geopolitical risks persist.