Gold rebounds after brief pullback as geopolitical risks rise

• Gold recovers, aided by a rise in geopolitical risks after a steep sell-off on the previous day. 
• Speculation that a BRICS Gold-backed currency could become an alternative to the US Dollar also drives flows.  
• XAU/USD continues to look bullish as its overall uptrend remains intact and the commodity keeps making higher highs. 

Gold (XAU/USD) recovers to trade back in the $2,730s on Thursday, after a 1.2% sell-off on the previous day, most probably driven by profit-taking. The precious metal is once again on the rise on the back of continued safe-haven flows as the conflict in the Middle East continues with no sign of resolution.

Further, the news that North Korea has sent troops to Russia to potentially participate in the war with Ukraine has ratcheted up geopolitical risks, as has increased election uncertainty in the US. 

Gold recovers as major central banks slash interest rates 

Gold sees further upside as a result of the Bank of Canada’s (BoC) decision to slash its cash rate by 50 basis points (bps) on Wednesday and increasing speculation the European Central Bank (ECB) might do the same in December, after the release of tepid economic data for the region. With interest rates set to fall rapidly all over the globe, Gold should benefit given this will increase its attractiveness as a non-interest-paying asset. 

That said, in the US market expectations of the trajectory for interest rates have been subject to a substantial revision after the release of robust labor market data reduced the chances of the US Federal Reserve (Fed) aggressively cutting US interest rates.   

A further factor helping Gold price higher could be the focus on the BRICS 2024 summit in Kazan, Russia, as members – especially Russia – seek to find an alternative to the dominance of the US Dollar (USD), with a currency backed by Gold touted as a viable alternative.  

Technical Analysis: Gold pulls back then rebounds

Gold pulled back over 1.2% on Wednesday but rebounds on Thursday, continuing its rally higher.

The yellow metal is in a steady uptrend on all time frames (short, medium and long) which given the technical dictum “the trend is your friend” favors more upside. Having breached $2,750, the next big-figure target level lies at $3,000 (round number and psychological level). 

XAU/USD Daily Chart

The Relative Strength Index (RSI) has pulled back out of overbought, advising long-holders to close their long positions and open shorts. It is possible this could herald  a deeper correction, however, given the strong uptrend it is not enough alone to be certain. Support lies at $2,750, $2,700 (key round-number levels) and $2,685 (September high).  

Gold’s overall strong uptrend, however, suggests that any corrections will probably be short-lived, and afterward, the broader bull trend will resume.