Market update: Gold price rallies as USD slips and volatility ticks up

[MongiIG]

The gold price has held the high ground going into Tuesday’s trading session; Treasury yields appear to have rolled over after making new highs last week and the US dollar is under pressure despite global uncertainty.

 

Source: Bloomberg

 

Commodities Gold Gold as an investment Volatility United States dollar Federal Reserve

Daniel McCarthy | Strategist, | Publication date: Tuesday 10 October 2023 06:10

Gold's rebound amidst Middle East conflict and dollar weakness

The gold price bounced hard off a seven-month low to start this week in the aftermath of the outbreak of war in the Middle East, trading back above US$ 1,860 a troy ounce.

The perceived haven status of the precious metal helped to underpin but it has also seen the tailwinds of a weaker US dollar with Treasury yields reversing the gains seen last week. The benchmark 10-year bond eclipsed 4.88% on Friday, the highest return for the low-risk asset since 2007.

Treasury yields and central banker dovishness

It has since collapsed below 4.65% this week after dovish comments from Federal Reserve Bank’s (Fed) vice chair Philip Jefferson and the Dallas Fed President Lorie Logan. Somewhat ironically, both central bankers cited higher long-end Treasury yields as a reason to be less hawkish going forward. The interest rate market has now pretty much ruled out another hike by the Fed and sees a cut by the middle of next year.

Recent moves have seen volatility pick up for gold as measured by the GVZ index. This may suggest that further notable moves in the gold price might evolve. The GVZ index measures volatility in the gold price in a similar way that the VIX index gauges volatility in the S&P 500.

Spot gold, DXY (USD) index, US 10-year Treasury and GVZ index chart

 

Source: TradingView

Gold price technical analysis

The recent sell-off broke below the lower band of the 21-day simple moving average (SMA) based Bollinger Band. Last Thursday it closed back inside the band to signal a pause in the bearish run and the consequent reversal.

Resistance could be in the 1885 – 1895 area where there are a series of breakpoints with the 21- and 260-day SMAs just below that zone, which may add to resistance. Further up, the 100- and 200-day SMA lie ahead of 1930 and could offer resistance. On the downside, support might be at the previous lows of 1810, 1805, 1797, 1785, 1774, 1766 and 1735.

Spot gold daily chart

 

Source: TradingView

 

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.