Gold’s safe haven status under scrutiny amidst shifting market dynamics

Gold, traditionally viewed as a safe haven during turbulent times, has been experiencing an unexpected downturn in recent days, raising questions about its reliability as a refuge for investors in times of uncertainty. Despite escalating geopolitical tensions in the Middle East, triggered by the recent conflict between Hezbollah and Israel, gold prices have dipped below $2,400, defying expectations of a potential surge in demand.

A confluence of factors is contributing to this surprising trend. Although the US dollar had previously weakened along with the broader market, it has recently regained strength due to

positive economic data such as the better-than-expected ISM Services PMI. As the dollar regains value, gold becomes more expensive for holders of other currencies. This, coupled with rising US Treasury yields, has attracted investors towards dollar-denominated assets, further diminishing gold’s appeal with the dollar index seeing a significant bounce.

Meanwhile, recovering global stock markets, particularly in Japan and Europe, have boosted investor confidence and risk appetite, leading to a shift away from safe-haven assets like gold towards riskier assets like equities. Even expectations of a potential interest rate cut by the Federal Reserve in September have not been enough to offset these pressures on gold prices.

In the central bank space, comments from Federal Reserve officials, including San Francisco Fed President Mary Daly, hint at a potential reduction in borrowing costs in upcoming meetings. This speculation of a September rate cut could, in the future, support gold prices. However, current market dynamics are dominated by the dollar’s resilience and improved market sentiment.

Geopolitical risks, however, remain a wild card. The escalating conflict in the Middle East could potentially reignite demand for gold if the situation worsens. A conflict escalation could bolster gold’s prospects and even pave the way for reclaiming the $2,400 level. Nevertheless, for now, the interplay of various factors, including the strengthening dollar, rising yields, and recovering markets, continues to shape the gold market, leaving its future trajectory uncertain.

The recent performance of gold serves as a reminder that the dynamics of the precious metals market are complex and influenced by a multitude of factors. While gold has historically served as a safe haven, its appeal is not absolute and can be challenged by shifting market forces.

Gold price analysis: Hovers around $2,390

Gold holding below $2,400 could trigger a break below key support levels, potentially pushing prices down to the 3 May low of $2,277. There are indicators that bullish momentum still exists, with prices remaining elevated above the 100-day moving average and upward pressure evident towards $2,400. The RSI flat at the midline, however, hints that momentum could be fading and we could soon see a slowdown.

If the price breaches $2,400, bulls could find resistance at the $2,403 mark before a decisive move past that level is potentially halted at the $2,427 mark. On the downside, sellers could find support at the $2,375 mark, with a further move down likely to be held at the $2,360 psychological support.

As for now, you can get involved and speculate XAUUSD on CFDs with a Deriv MT5 account.  It offers a list of technical indicators that can be employed to analyse prices. Log in now to take advantage of the indicators, or sign up for a free demo account. The demo account comes with virtual funds so you can practise analysing trends risk-free.