Gold prices (XAU/USD) climbed to the $2,750 range on Tuesday, reaching the high point of last week’s range. This increase was fueled by a sharp drop in oil prices, with Brent crude falling by 6% on Monday. The drop followed news that Israel’s recent military actions in Iran avoided oil and nuclear sites, helping to keep oil supplies stable.
How Lower Oil Prices Help Gold
As oil prices drop, global inflation can decrease. Lower fuel and energy costs mean cheaper production, transportation, and heating. Lower inflation could lead to falling interest rates worldwide. This makes gold, a non-interest-paying asset, more attractive to investors.
Gold is also supported by safe-haven demand, as conflicts in the Middle East and Ukraine create uncertainty. News of North Korea sending troops to help Russia has further increased gold’s appeal.
Why Gold May Face Resistance: Higher Bond Yields and a Stronger US Dollar
Even though gold is rising, it may face resistance from increasing US Treasury bond yields. Concerns that former President Donald Trump could return to office are affecting investor behavior, as his policies may increase inflation and government borrowing. This has led some investors to sell off their US Treasury bonds.
As bond yields rise, the US Dollar gains strength, which can put a cap on gold prices. For example, the US 10-year Treasury Note yield has risen to 4.302%, while the 5-year and 3-month Treasury yields are also climbing. Since gold is priced in dollars, a stronger dollar often limits gold’s gains.
Technical Analysis – Gold Nears Top of Its Range
Gold continues to trend upward across all timeframes. Currently, it is testing the top of its range, from $2,708 to $2,758. If it breaks above $2,758, gold could reach the next target of $3,000—a significant level for many investors.
Further Reading on Gold
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