Gold price dips to $1,920, Israel-Hamas war to limit losses

Gold price below multi-week highs as analysts watch Israel-Hamas war

On Monday, the price of gold dropped to approximately $1,920 per ounce, retracting some of its recent gains as traders continued to watch the Israel-Hamas war and assess its potential impact on the global economy.

The metal surged more than 3% last Friday alone as escalating tensions in the Middle East boosted safe-haven demand for the precious metal.

Israeli Prime Minister Benjamin Netanyahu vowed to "demolish Hamas" on Sunday as his troops made preparations for a ground invasion of the Gaza Strip, as per a Reuters report. Iranian President Ebrahim Raisi warned that the war could expand if Israel's siege of Gaza does not stop.

The gold market was also driven by a decrease in Treasury yields last week, which reflected the growing belief that the U.S. Federal Reserve (Fed) is close to ending its monetary tightening policy.

Investors are now looking forward to fresh insights from Fed officials in the coming week to gain more clarity on the central bank's stance on interest rates.

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Gold price forecast: Analysts mostly bullish on the yellow metal

A weekly gold survey by Kitco, released last Friday, indicated that market analysts and retail investors shared a near-identical bullish consensus on the yellow metal's prospects for the week ending October 20. Over 70% of those surveyed — both on Wall Street and Main Street — expected gold to rise.

"I am bullish on gold for the coming week," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "It looks like US treasury yields and the US Dollar have paused for the moment and that may continue with focus turning to corporate earnings. Meanwhile with the war drums pounding louder, precious metals may continue to attract renewed interest in their haven for capital role."

Adrian Day, President of Adrian Day Asset Management, saw gold prices trading flat this week after posting substantial gains recently:

"Geopolitical rallies in gold tend not to last long. For the gold price next week, much depends on the developments in the Middle East. Most likely tensions will remain high and so will gold. In the longer term, monetary factors are more important for the gold price; these suggest perhaps weakness in the immediate term (monetary tightening, reduced bank lending) but extremely bullish by the turn of the year as the economy slows, inflation remains stubborn and the Fed is unable to tighten more."

A quote shared by FXStreet citing analysts at Frankfurt-based Commerzbank said it was “far too early” to abandon risk-off sentiment, indicating potential support for the gold price in the short term:

“The market took a whole week to assume risk-off sentiment. That was not a masterstroke in efficient information processing!

Of course, the market has now finally worked it out: USD and particularly CHF and more so gold – in other words: the classic safe havens – were able to appreciate at the end of the week.

Typically, such periods of risk-off are quite short-lived, but until the ground offensive of the Israeli army has started and while it is still unclear how the Arab states will react to this, it is still far too early to abandon risk-off again.”

Gold technical analysis: $1,900 could act as strong support level

FXStreet contributor Haresh Menghani offered his take on the key technical levels to watch for the gold price in upcoming sessions:

“From a technical perspective, any subsequent decline is more likely to find decent support near the $1,900 round-figure mark. The said handle coincides with the 100-day SMA and should now act as a key pivotal point. A convincing break below could make the gold price vulnerable to test the next relevant support near the $1,868 horizontal zone before dropping to the $1,860-1,855 region.

On the flip side, bulls might now wait for some follow-through buying beyond Friday’s swing high, around the $1,932-1,933 zone, before placing fresh bets. The gold price might then accelerate the momentum towards the $1,945-1,947 heavy supply zone. A sustained strength beyond the latter will be seen as a fresh trigger for bulls and pave the way for a further appreciating move.”

Meghani’s view was shared by analysts at ANZ, who said that buying could emerge around the $1,900 level, limiting the downside for gold:

“Gold would need to stay above $1,910 and break the next resistance level, of $1,950, to reverse the current downtrend. A breach of $1,950 would also confirm the latest ‘double bottom’ formation, which would indicate a trend reversal.

As the recent price action was triggered due Israel-Hamas war, the geopolitical premium could quickly vanish if the situation normalises.

Prices could fall back below $1,900 range. But buying could emerge at this level, limiting the downside.”

The gold price forecast shared by economic data aggregator TradingEconomics saw the commodity trading at a potential average of $1954.92 by the end of this quarter. The platform’s 12-month gold price projection estimated it to trade at $2023.71 by mid-October 2024, indicating a potentially bullish outlook.

When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.