Spot Gold Prices Drop Amid Strengthening Dollar and Easing Middle East Tensions
On Wednesday, October 23, spot gold prices fell sharply, dropping more than 1% after hitting a record high earlier in the day. The decline came as the U.S. dollar strengthened, U.S. bond yields rose, and tensions in the Middle East appeared to ease, prompting investors to take profits. Spot gold closed down \$33.44, or 1.22%, to finish at \$2,715.24 per ounce. Earlier in the session, gold had reached an all-time high of \$2,758.45 per ounce.
Analysts suggest that the rising U.S. dollar index, which reached a two-month high of 104.50, and increasing U.S. Treasury yields have contributed to the decline in gold's attractiveness. The yield on the 10-year U.S. Treasury note climbed to 4.248%, making non-yielding assets like gold less appealing to investors. Market strategist Bob Haberkorn from RJO Futures noted that profit-taking trades are also weighing on gold, especially as Treasury yields rise.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, linked the rise in Treasury yields to uncertainty around the U.S. election and an increasing U.S. debt burden. He explained that the U.S. Treasury is expected to issue billions of dollars in debt to a tight market ahead of the election, adding pressure to bond yields. Meanwhile, FXStreet analyst Christian Borjon Valencia reported that the surge in Treasury yields, coupled with a stronger U.S. dollar, led gold to tumble from its earlier peak.
In addition to macroeconomic factors, easing geopolitical tensions in the Middle East have also played a role in the decline of gold prices. NBC reported that Israeli officials are considering an Egyptian proposal for a short-term ceasefire with Hamas, with the aim of brokering a more comprehensive truce. U.S. Secretary of State John Blinken arrived in Israel on Tuesday as part of renewed diplomatic efforts to de-escalate the regional conflict. The potential ceasefire and diplomatic developments have contributed to a broader reduction in demand for safe-haven assets like gold.
From a technical standpoint, Valencia noted that gold's sharp fall formed a bearish engulfing pattern, indicating that further downside might be possible. The Relative Strength Index (RSI) has dropped from its overbought state, suggesting that the momentum of gold's recent rally may be waning. Valencia identified key support levels at \$2,699 per ounce (the 38% Fibonacci retracement level), \$2,681 per ounce (the 50% retracement), and \$2,662 per ounce (the 61.8% retracement). On the upside, should gold manage to break above \$2,750 per ounce, the next target would be the all-time high of \$2,758 per ounce, followed by \$2,800 per ounce.
Investors are also focusing on upcoming U.S. economic data, which could provide further direction for gold prices. On Thursday, U.S. initial jobless claims for the week of October 19 are expected to rise slightly to 242,000 from 241,000. Additionally, S&P Global will release U.S. Purchasing Managers' Index (PMI) data for October, with manufacturing PMI expected to increase from 47.3 to 47.5, while services PMI is forecast to fall from 55.2 to 55.
