Gold price forecast: bearish divergence pattern forms

Gold price has remained steady above the support zone of $2,600 an ounce since rallying past the level over three weeks ago. Notably, it has been rather range-bound since hitting a fresh record high on 26th September at $2,685.

The week’s light economic calendar has gold price recording rather subtle movements. Even so, a strong US dollar and forecast on the Fed’s next move are at play.

US dollar

The US dollar extended gains from the past two weeks; hitting a two-month high at the beginning of the week. The rallying, which is on the back of heightened bets that the Fed will ease on its interest rate cuts, is limiting gold price’s upside potential. Additionally, a better-than-expected US jobs report and CPI numbers have pointed to a resilient economy. As is the case with other dollar-priced assets, a stronger US dollar makes gold more expensive for buyers holding foreign currencies.

At the same time, Fed officials, including Fed Governor Christopher Waller, have taken a more cautious stance; feeding into the expectation of a 25 bps rate cut. On Monday, Waller indicated that based on the recent economic data, there’s need for “more caution” on lowering interest rates going forward.

With traders trimming bets of another jumbo interest rate cut by the Fed, Treasury yields have been on the rise in recent weeks. The benchmark 10-year yields have rallied from a 16-month low at 3.60% to hold steady above 4.00% over the past week. Higher Treasury yields increase the opportunity cost of holding the non-yielding bullion, hence the asset’s limited upside potential.

Solid support

Even with the stronger US dollar and higher Treasury yields, bulls remain in control of the gold market. In fact, as at the time of writing, the precious metal was just about $20 shy of the all-time high hit in late September.

Geopolitical tensions in the Middle East remain a major bullish factor for gold price. More specifically, fears that the conflict between Iran and Israel will escalate have more investors running to this traditional safe haven. Tensions have been particularly high over the past two weeks after Iran’s missile attack on Israel.

Following the attack, the region and world at large has braced for Israel’s aggressive response; an aspect that has boosted gold price. In fact, there have been concerns that the Israeli military will strike Iran’s nuclear-related sites and energy infrastructure.

However, according to officials familiar with the matter, Israeli Prime Minister, Benjamin Netanyahu has informed the US administration that he is willing to strike the Iranian military infrastructure as opposed to the country’s nuclear or energy facilities. These remarks are seen to avert a full-blown war.

That said, Israeli’s Defense Minister has insisted that the country’s retaliatory attack on Iran would be “precise, painful, and surprising”. What’s more, a statement from Netanyahu’s office has indicated that the leader is opposed to a “unilateral ceasefire” in Lebanon.

Gold price is set to continue benefiting from these geopolitical tensions. Granted, signs of a ceasefire would lower interest in gold as a safe haven.