Gold Nears Key Support Amid Rising Yields, US Dollar Strength - Rebound Ahead?

• Gold struggles as easing geopolitical tensions and rising yields weigh on its safe-haven appeal.
• Traders eye key support levels for potential signals in the yellow metal’s short-term trend.
• Chinese economic uncertainty adds pressure, challenging the metal’s resilience at elevated prices.
• Looking for actionable trade ideas to navigate the current market volatility? Unlock access to InvestingPro’s AI-selected stock winners for under $9 a month!

Risk sentiment was positive in the first half of Monday’s session, buoyed by the easing of geopolitical tensions after Israel’s limited strikes on Iran. European stocks pushed higher as crude oil fell sharply, dropping over 5%, while gold edged lower.

Iran reported its oil industry was operating as usual following Israel’s attacks on military targets in response to an earlier missile barrage. The restrained nature of Israel’s response has fostered optimism that the conflict might not escalate further.

Meanwhile, markets are preparing for a packed week of data releases, including Chinese economic activity indicators, Eurozone and US growth figures, and US payrolls report, as well as key company earnings.

Has Gold Peaked or Paused?

After touching record highs repeatedly, gold has pulled back at the start of this week, leaving investors to ponder: has the metal peaked, or is this merely a pause?

While concerns over the Middle East situation have eased somewhat, US presidential election uncertainty means geopolitical risks are still a factor that could lend support.

Yet, the absence of fresh bullish drivers means investors are going to struggle to find excuses to keep buying minor dips until we see a proper correction.

Indeed, a strong US dollar and rising bond yields create hurdles, heightening the opportunity cost of holding non-yielding assets like gold.

Rising Yields and Dollar Strength Challenge Gold’s Appeal

The US 10-year Treasury yield has risen further, now holding well above the 4% mark at 4.27% and the dollar’s strength, particularly against the yen, is notable.

Both reflect expectations of a slower pace of Federal Reserve rate cuts, with the US dollar also rising on increasing chances of a Republican victory in the US presidential election.

With few major economic releases expected in the US today, the dollar and yields are likely to stay firm, putting pressure on gold.

Should these trends hold through the week with the release of not-so-weak US data, gold may struggle in the short-term outlook.

Easing Middle East Tensions and Gold’s Haven Demand

Gold’s safe-haven status took a knock following Israel’s indication that it won’t escalate tensions with Iran after its attacks on military targets across the country were limited.

This weighed heavily on oil prices, which in turn eased haven demand for gold. However, this source of support is not completely priced out.

China’s Economic Uncertainty Adds Pressure

China, the world’s top gold consumer, plays a key role in demand, yet its recent economic data releases suggest the appetite for gold may not remain so strong with prices this elevated, especially with the yuan weakening in recent weeks amid disappointing data and the unleashing of monetary stimulus by the PBOC.

Initial optimism over government stimulus has waned as details remain scarce, casting doubt over its ability to hit growth targets. This lack of clarity has affected commodities, with copper taking a hit. It won’t completely surprise me if gold were to potentially follow suit now, should China’s economic challenges persist.

Gold Technical analysis and trade ideas

Recent technical moves hint at a possible reversal in gold’s fortunes. After reaching new highs, momentum has waned, as the metal encounters resistance against the stronger dollar and higher yields.

With the Relative Strength Index still at extremely overbought levels on the higher time frames, gold might be on the verge of a correction or a pause in the rally. Perhaps similar to the 2020 pullback.

Gold Weekly Chart

Still, we need to see the trigger before looking for short setups. Gold needs to break a key support level, break a trendline, make a lower low, or form a confirmed reversal-looking price candle as a minimum.

None of these signs have emerged yet to signal a shift. But that could easily change soon.

A daily close below the $2715-20 support area would indicate a short-term bearish shift. If that happens, gold may initially move down to $2685, which is the next nearest support level.

The next level below that is not very obvious but $2625 is also an interesting level to watch in the event of a bearish shift.

Gold Daily Chart

That said, while gold holds above these levels the bulls will maintain control despite today’s slight pullback.

Gold certainly has room for further upside in the long-term outlook and I will remain the bullish camp as I have done so in the last several years.

It is just that in the short term, the risks are now tilted to the downside amid some unfavorable macro developments in recent weeks.

As traders we have to be flexible and not let our long-term views cloud our judgment on a day-to-day basis when it comes to trading gold.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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