Gold may shine brightest as geopolitical blues deepen ahead of central bank meetings

Gold remains a safe-haven asset, offering a buffer against geopolitical uncertainties and potential dollar strength.

COMEX gold surged above $2,000 an ounce during the week, marking a third consecutive weekly gain, as the war between Israel and Hamas escalated, raising fears of the conflict spreading to wider West Asia.

Gold consolidated below the psychologically significant $2,000 level earlier in the week as Israel put off the planned ground invasion of Gaza.

Its limited strikes on Gaza on October 26 and 27 raised the possibility of a ground invasion, reigniting concerns about a wider conflict. The US conducted strikes on two facilities in eastern Syria, while a rocket reportedly hit an Egyptian border town near the Gulf of Aqaba.

Safe-haven bids have driven much of the recent buying in gold. While geopolitical tensions influenced prices, the US economy demonstrated resilience and outperformance.

Private sector expansion in October defied expectations, while housing data revealed a surge in new home sales to a 19-month high in September and a rebound in pending home sales.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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The US economy also posted robust annualised growth of 4.9 percent in Q3, despite higher interest rates. Core PCE prices and personal spending further reinforced the notion of sustained economic strength, impacting the demand for gold.

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The European Central Bank (ECB) also played a role by pausing interest rates, marking a departure from its 15-month streak of hikes. The shift favoured the US dollar due to widening interest rate differentials with the Eurozone.

Central bank action

The upcoming monetary policy meetings of the Bank of Japan, the Bank of England and the US Federal Reserve are set to influence markets.

The Federal Reserve is expected to hold interest rates steady during the November meeting, emphasising the need for an extended period of elevated rates.

Economic data will be closely monitored, with a focus on US ISM PMIs, US job data and Chinese PMIs offering insights into the global economic landscape.

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Developments in West Asia will remain in the spotlight. Iran's foreign minister's statement had raised fears of a direct confrontation with the US.

The uncertain environment has elevated gold prices, as the metal benefits from a higher risk premium, potentially serving as a hedge against a stronger US dollar.

From a technical standpoint, COMEX gold closed the week above the double-top resistance near $2,009. This suggests a bullish outlook, with the possibility of the yellow metal hovering close to an all-time high of $2,085-$2,090, a formidable multiple resistance zone. Downside support is at $1,965.

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In summary, gold's recent rally can be attributed to escalating geopolitical tensions and ongoing central bank actions. The US economy's surprising resilience and the ECB's shift in interest rate policy influenced prices and the strength of the dollar. As central bank meetings and economic data releases loom, gold remains a safe haven, offering a buffer against geopolitical uncertainties and potential dollar strength.

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