Sentiment in the gold market has become more optimistic. Due to increasing geopolitical uncertainty, the demand for safe-haven assets has further increased, and the prices of the precious metal have returned to $2000 per ounce.
Traders should pay attention to the support around $1950 per ounce. However, there is a high probability that $2000 may become a short-term resistance, as the yield on U.S. bonds remains below 5%.
The price movement of gold is the subject of a struggle between two opposing forces. On one hand, geopolitical instability and the threat that the conflict in Israel and Gaza may spread throughout the region continue to stimulate demand for the precious metal. On the other hand, after the release of U.S. economic data that performed better than expected and led to an immediate strengthening of the U.S. dollar, it supported the yield of Treasury bonds and reduced the attractiveness of non-yielding gold.
With a bond yield of around 5%, U.S. Treasury bonds may become an attractive safe-haven asset and compete with the precious metal.
It's also worth remembering that the Federal Reserve's aggressive stance continues to be a risk for gold. There is a possibility that the central bank of the United States will keep interest rates unchanged next week. However, there are expectations that the hawkish stance of maintaining high-interest rates for a longer period will continue to support higher bond yields and strengthen the U.S. dollar, which are two traditional obstacles for gold.
Even though the Federal Reserve does not plan to cut rates in the near future, the end of the rate tightening cycle does indeed provide some support to gold in the future.
But the negative correlation between gold and bond yields may remain weak as investors focus on potential debt problems in the United States.
The U.S. debt of $33 trillion is a substantial reason to consider whether holding Treasury bonds right now is a wise choice.