Gold (XAU/USD) Analysis
- Gold spiked higher, falling narrowly short of the all-time high
- FX markets captured the flight to safety while US equity markets were shut
- Gold volatility index eyed ahead of the weekend
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Gold Spiked Higher, Falling Narrowly Short of the All-Time High
Gold prices spiked higher in the early hours of Friday morning after reports emerged of the Israeli strike on Iran. The back and forth between the two nations risks sparking a broader conflict between the two and prompted a short-lived flight to safety.
Uncertainty surrounding the conflict in the Middle East has helped push gold prices higher and higher, nearly testing the all-time high around $2431.
On the daily chart, gold continues to trade within overbought territory but the degree of overheating has been cooling down – suggesting a slow down in bullish momentum within the broader uptrend.
The 1.618 Fibonacci extension of the 2020-2022 move reemerges as support at $2360, with a pocket of higher lows providing an area of further interest around the $2320 level. A strong US dollar and rising Treasury yields have done little to deter the rampant rise in the precious metal as central bank buying continues to add to the tailwind.
Gold (XAU/USD) Daily Chart
Source: TradingView, prepared by Richard Snow
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While US stock markets were closed, the FX market was on hand to reveal the immediate response as soon as news broke of an Israeli attack on Iran. Traditional safe-haven currencies like the Swiss franc, Japanese yen and US dollar registered gains, while the more risk-aligned (high beta) Australian dollar witnessed the sharpest decline.
AUD has plummeted in recent days due to its historical correlation with the S&P 500, which is on track for a third straight weekly decline. In addition, Chinese economic prospects remain underwhelming, adding further to the headwinds for AUD.
Immediate Flight to Safety Exhibited in the FX market Overnight
Source: Financial Juice, prepared by Richard Snow
Gold Volatility Index in Focus
The 20-day implied gold volatility (GVZ) index provides a forward-looking measure of gold market volatility, hence its usefulness to investors and traders. Recent volatility has dipped and the focus will be on whether the two nations consider the recent flareup finished or is Iran intends to respond once again.
30-Day Implied Gold Volatility (GVZ)
Source: TradingView, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX