A Cease-fire in Gaza Stopped Gold Prices from Rising above $2010

Gold prices added 0.7% to $1994 per troy ounce since the beginning of the week. Prices surged even higher to $2007 per ounce on Tuesday, as they were attempting to break through the resistance at $2010 per ounce. Prices rolled back to $1986 per ounce on Wednesday.

The rise of gold prices was based on the declining borrowing rates in the United States. The U.S. 10-year Treasuries yields dropped to 4.38% from 4.46% this week. The U.S. Dollar index (DXY) dropped by 0.6% during the first half of the week. There are no further reasons for the Dollar to drop further. However, investors were playing the same cards of the last week, when U.S. inflation in October turned lower than expected propelling bets that the Federal Reserve (Fed) would lower its interest rates next May instead of previously expected July 2024.

FOMC Minutes hasn’t changed much in this puzzle. The DXY has recovered all its losses by Tuesday, before the Minutes were released. Gold prices closed this day around $2000 per ounce. But they have been unexpectedly stumbled by strong labour market data in the United States, where Initial Jobless claims fell to 209,000 from 233,000, while Continuing Jobless claims fell to 1,840,000 from 1,862,000. The 10-year Treasuries yields fell to 4.36% from 4.48% on the news. Investors fear that strong labour market will shy the Fed from lowering its interest rates in May.

Israel and Hamas agree for a cease-fire and exchange of prisoners and hostages within the next 4 days at least. This also contributed to the gold prices decline by 0.5% on Wednesday.

So, where gold prices would go now? Capital inflows into SPDR Gold Trust ETF (GLD) were reported at $970 million last week, the largest inflow since March, when it was recorded at $1200 million. Investors were rushing into gold amid banking crisis in the United States. Do we have the same situation now? Clearly not. The lower-than-expected inflation could hardly be a serious push for gold prices. Besides, they rose by 10.5% during three weeks after these inflows in March. Now prices added only around 2.6% instead of surging by 6-7% to $2060-2070 per ounce as they could be considering the inflows level comparison.

Technically, the long-term uptrend in gold is intact, but short term upside opportunities are contracting. Some chances for an upside for gold prices are likely to remain before mid-December. Within this period, prices may spike to $2100 per ounce if they would pass the $1990-2010 resistance level, of course. This is also a good opportunity for prices to reverse towards $1800 per ounce or even lower.

So, investors’ bet on a breakthrough of $1990-2010 per ounce level is quite risky. Although it may work, but further perspectives of gold prices are unclear. It could be s brief impulse towards the $2100 ceiling with a sharp reversal down, or a gradual upside with a following soft decline of gold prices.