Easing Middle-East Conflict Pressures Gold Prices

Gold prices are steadily going down this week. The yellow metal lost 2.3% to $1945 per troy ounce. This is much for the moment, but prices may fell even further this week, to $1900-1930 per ounce. 

Gold prices are generally supported by declining U.S. 10-year Treasuries yields that fell to 4.52% from 4.57% this week. This might seem not that much, but indeed this is a positive trend for gold. The U.S. Dollar is steady, while the idea of the end of the monetary tightening cycle is dominating in the market. The positive improvements are translated into capital inflows into gold ETFs. Capital inflows into SPDR Gold Trust (GLD) last week at $277.4 million were the largest since August. The is most impressive after constant capital outflows during the last two months.

So, the macroeconomics seems to be not that import for gold. Prices are mostly directed by geopolitical factors, Israeli-Palestinian war in particular. The evolvement of this conflict will pinpoint the war premium in bullion prices. This premium rolled back to 7% from 9% a week ago. This premium was inflated throughout October, when Hamas terrorists attacked Israel. But the conflict has lost momentum as neighboring nations, Iran in particular, are standing mostly aside of the military involvement. Gold prices have hit the resistance at $2000-2020 and rolled back.

The development of the Middle East conflict is hard to predict. According to statements form Washington and Tel-Aviv ground operations in Gaza strip may last for another two months. This is too long, as Israel’s swore enemies might get involved into it. Then, the war premium in prices would increase towards $2000-2020 per ounce. Technically, gold prices may rally to $2100 by mid-December. Chances for this scenario could increase dramatically when gold prices would decrease to the support at $1910-1930 per ounce. However, crude prices dynamics, which is the major indication of Middle East conflict, does not support this idea. Brent crude prices suddenly dropped by 6.0% to $80 per barrel, the lowest mark since July. This may indicate an expectation of a massive drop in demand, or it may reflect doubts that this conflict would expand into a full-scale regional war. If so, gold prices may dive even deeper surpassing the $1910-1930 per ounce support towards $1830 per ounce to erase this war premium completely.