Gold prices held near a two-week high of $2,664 early on Friday, as market participants took a breather after a 1.5% rally earlier in the week.
Geopolitical Tensions Fuel Gold’s Upsurge
The price of gold saw an initial boost on the first trading day of the New Year, benefiting alongside the US Dollar (USD) as investors flocked to safe-haven assets. Heightened geopolitical risks, particularly the intensifying conflicts in the Middle East and concerns over the policies of incoming US President Donald Trump, supported the rise in gold prices.
Trump’s protectionist policies, which may provoke new trade tensions with China, have sparked increased demand for gold as a safe-haven asset. However, market participants are also cautious, as these policies could be inflationary, leading the US Federal Reserve (Fed) to adopt a more cautious approach regarding future interest rate cuts. This could temper gold’s upside potential, given its status as a non-interest-bearing asset.
Middle East Conflicts Drive Further Gains
The escalation of violence in the Middle East added to gold’s bullish momentum. According to Reuters, Israeli airstrikes killed at least 68 Palestinians in Gaza, including the Hamas-controlled police chief and other officials. Meanwhile, Russia launched a drone strike on Kyiv, Ukraine’s capital, causing significant damage to two districts.
Additionally, Axios reported that President Joe Biden was presented with military options in response to Iran’s nuclear ambitions, particularly if Tehran moves toward developing nuclear weapons before Biden leaves office on January 20. These developments further strengthened demand for gold as a store of value amid growing global uncertainties.
US Economic Data and Market Sentiment
Markets also processed strong US economic data, including a drop in Initial Jobless Claims to an eight-month low of 211,000 last week, down from the 222,000 estimated by analysts. However, this data may have been skewed due to seasonal factors related to the year-end holidays.
The market’s attention is now shifting toward the upcoming US ISM Manufacturing PMI data and a speech by Richmond Federal Reserve President Tom Barkin, which may provide further clues on future economic and monetary policy directions.
Gold Technical Outlook
Gold’s recent rally has seen it surpass all major daily Simple Moving Averages (SMAs), with the price closing above the critical 50-day SMA at $2,655. The 14-day Relative Strength Index (RSI) has now recaptured the 50 level, suggesting room for further upside.
If buying pressure continues, the next key target for gold is the $2,700 level, followed by the December 12 high of $2,726. On the downside, immediate support is seen at the 21-day SMA, which now sits at $2,638. If the price falls below the 50-day SMA at $2,653, it could trigger a fresh downtrend, with the next significant support located at the weekly low of $2,596.
Looking Ahead
As geopolitical tensions in the Middle East and concerns about China’s economic outlook persist, they will remain pivotal in driving gold prices. Investors will also be closely monitoring economic indicators and speeches from US Federal Reserve officials to assess the broader market sentiment and potential implications for the price of gold.
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