On Wednesday (November 20), due to the escalation of tensions between Russia and Ukraine, geopolitical uncertainties intensified, prompting investors to seek refuge in gold. The spot gold price rose for the third consecutive trading day and reached a one-week high.
Spot gold surged $18.12 to close at 0.7% higher at $2650.06 per ounce on Wednesday.
In response to Ukraine's first long-range missile attack on Russian territory, Russian President Putin amended the nuclear weapons guidelines to lower the threshold for nuclear retaliation in response to a wider range of conventional attacks, resulting in an escalation of geopolitical tensions.
Peter Grant, Vice President and Senior Metal Strategist at Zaner Metals, stated that this clearly triggered safe-haven buying. However, the strength of the US dollar poses a certain resistance to the rise in gold.
Analyst Christian Borjon Valencia from FXStreet pointed out that with the boost in risk aversion boosting safe-haven assets, gold prices climbed for the third consecutive day on Wednesday, overcoming the impact of a stronger US dollar.
Valencia mentioned that the escalation of Russia-Ukraine conflict and Putin's nuclear threat drove the surge in the price of gold. On Tuesday, Russian President Putin authorized the use of nuclear weapons in retaliation against the West. In addition, officials mentioned that the White House authorized Ukraine to use American weapons within Russian territory. Gold prices have risen by over 3.40% so far this week, with buyers eyeing the $2700 per ounce mark.
On Thursday, investors will focus on the US initial jobless claims and housing data.
For the week ending November 16, the number of initial jobless claims in the US is expected to rise from 0.217 million people to 0.22 million people. US existing home sales in October are expected to increase from 3.854 million units to 3.93 million units.
Investor attention is also focused on the speeches of Federal Reserve officials to be delivered this week. Market expectations for a rate cut in December have dropped significantly, currently at 55.7%, down sharply from 82.5% a week ago.
ANZ Bank report stated: "If the Federal Reserve pauses its rate cuts in December, it may suppress short-term gold prices. However, loose monetary policies, macroeconomic and geopolitical uncertainties, and healthy physical demand will maintain a positive sentiment in the gold market."
Gold has always been seen as a hedging tool against inflation, but due to not generating interest, a high interest rate or rate hike environment will reduce the attractiveness of holding gold investments.
Ukraine used British missiles for the first time to attack targets inside Russian territory, leading to several foreign embassies in Ukraine urgently closing down.
According to the Financial Times of the United Kingdom on Wednesday local time, Ukraine used British-supplied 'Storm Shadow' cruise missiles to attack targets within Russian territory for the first time. Although the British side had allowed Ukraine to use military equipment such as tanks, they had previously restricted the use of long-range missiles.
A Western official familiar with the attack situation stated that at least one Russian military target was hit by multiple missiles.
Reports indicate that Ukraine, with the permission of Western countries, used British 'Storm Shadow' missiles for the first time to attack the Kursk region of Russia.
Furthermore, The Times cited sources reporting that the ban on Ukraine using British 'Storm Shadow' missiles on Russian territory is likely to have been lifted.
The United Kingdom and Ukraine's military have not yet confirmed the use of the missile.
For months, the Ukrainian government has been requesting Western allies to use its long-range weapons to strike Russian territory, while the Ukrainian army is working hard to hold onto the land they have occupied in the Kursk region.
On Wednesday, the embassies of Italy, Greece, and Spain in Ukraine announced that due to the risk of attack, the embassies would be closed on the same day.
In addition, on Wednesday, the US Embassy in Kyiv, Ukraine, also stated that they had received information about a possible major airstrike on November 20. As a precaution, the embassy will be closed, and embassy staff have been instructed to take shelter on-site.
On Tuesday local time, Ukrainian forces for the first time used the US Army Tactical Missile System (ATACMS) to attack a facility in Russia's Bryansk Oblast. The Russian Ministry of Defense confirmed that Ukraine used the US Army's tactical missile system missile to attack Russia, with Russia's anti-missile system shooting down five out of six missiles.
On Tuesday local time, Russian President Putin signed a decree approving the new Russian national basic policy on nuclear deterrence. The decree comes into effect on the day of signing. The new policy expands the scope of countries and military alliances against which Russia can apply nuclear deterrence, proposing to consider any non-nuclear country invading Russia with the support or participation of a nuclear state as a 'joint attack' against Russia.
How to trade gold?
Analyst Christian Borjon Valencia from FXStreet pointed out that the gold price is inclined to move upwards, but buyers must clear the key resistance level. If the gold price breaks through the 50-day Simple Moving Average (SMA) at $2658 per ounce, it may face obstacles around $2700 per ounce. Once it surpasses the latter, the gold price will target the high of November 7 at $2710 per ounce and the psychological level of $2750 per ounce.
On the other hand, Valencia added that if the gold price falls below $2600 per ounce, the sellers will have the upper hand. It is expected that gold will further decline, with the next support at the 100-day simple moving average of $2550 per ounce. Subsequently, the bears may target the volatility low of November 14 at $2536 per ounce, after which the gold price will plummet to $2500 per ounce.
Valencia stated that the Relative Strength Index (RSI) still shows a bearish outlook, but the indicator is approaching the neutral line, indicating that gold buyers are gathering short-term momentum.
