Gold continues to climb higher amidst Israel-Hamas conflict

Gold prices are continuing the climb higher that began with the outbreak of the latest round of hostilities between Israel and Hamas.

In two weeks, gold has jumped nearly $150 from $1820 to $1977. Sharp move was also seen in MCX as gold jumped from ,to 60,600. Not just precious metals but crude also jumped from $81 to $90.

US Treasury yields have jumped to 5%, highest since 2007 but even rising yields have failed to stop the rally in gold.

The hospital bombing in Gaza have given rise to further instability as even Lebanon could start striking Israel. This is a major black swan entering on the market, on top of another debt ceiling thing coming, and US still does not have speaker in the house. We believe gold will re-test $2000 and only will sustain above it if Hezbollah joins the fight with help from Iran.

Gold futures are in contango meaning the projection is that we trade higher as we move forward. Gold is in a good position to ride the near-term wave of rising oil prices along with the safe haven bid.

Gold market was not deterrent even when Federal Reserve Chair Jerome Powell reiterated his stance that interest rates will have to be higher for longer. However he provided little new guidance on monetary policy heading into year-end. Gold market has priced in a lot of bad news already, and the Federal Reserve, near the end of its tightening cycle, should not provide the same headwinds for the precious metal.

Gold is also benefiting from credit risk as rise in bond yields is creating some credit risk. Gold could remain an attractive asset as fears around the US debt continue to grow. This sentiment could turn even more investors away from the bond market, pushing yields higher. So gold is again in a very sweet spot with rising geopolitical crisis, safe haven demand and hedge against higher inflation.

Gold in MCX is in overbought zone as we have mentioned that we saw one way rally in nearly two weeks from 56,500 to 60,600. Momentum oscillator RSI_14 is at 70 and inching up towards 73 where historically we have seen correction coming.

Also $2000 is strong psychological resistance in COMEX so we are expecting some profit booking from that level. There are no reversal sign on daily scale so we will recommend going long with expected target of 61000 and stoploss of 59,500.

Any long position near 61,000 should be booked as gold would be coming around that region where historically we have seen profit booking coming.

The author, Bhavik Patel, is a commodity and currency analyst at Tradebull Securities.

(Views expressed are the author’s own. Please consult your financial advisor before investing.)