Gold rallies on China demand, weakening Dollar

• Gold is extending to fresh all-time highs on news of an increase in demand from China. 
• A weaker US Dollar is further propelling the precious metal higher. 
• Middle East peace talks have hit an impasse, further increasing geopolitical risk. 

Gold (XAU/USD) trades up to a new all-time high in the $2,520s on Tuesday on the back of news of solid demand from China, a weakening US Dollar (in which the precious metal is mostly priced), and continued geopolitical risks stemming from the Middle East, where peace talks are at risk of running aground. 

Gold at new high after news of Chinese demand

Gold continues rallying on Tuesday on the back of increased safe-haven demand from China. The People’s Bank of China (PBoC) issued new Gold import quotas to banks which “triggered speculation of a renewed wave of demand,” according to broker SP Angel. Safe-haven demand for Gold in China rose after Chinese 10-year Government Bond yields fell to record lows last week and, as a result, “Chinese buyers are seeking alternative safe-haven protection, with Gold an obvious candidate,” added the broker.

Gold is gaining a further lift as the US Dollar pushes to a new low eight-month low on Tuesday. The US Dollar Index (DXY) fell to 101.76 in early trade – a positive for Gold since the two assets share a high degree of negative correlation. 

Gold may be seeing safe-haven demand after an attempt to reach a peace agreement in the Middle East, spearheaded by US Secretary of State Antony Blinken, stalled with Israel ready to agree but Hamas not because it wants the agreement to include a permanent and not a temporary ceasefire as laid out in the current deal. Hamas further ratcheted up tensions by owning up to a recent suicide bomb attack in Tel Aviv. An Iranian all-out attack against Israel also remains an overhead risk factor. 

Technical Analysis: Gold moves up towards breakout target

Gold (XAU/USD) extends to new all-time highs after breaking out a range it was trapped in since July. It is on its way to the initial target for the breakout at $2,550, calculated by taking the 0.618 Fibonacci ratio of the range’s height and extrapolating it higher. 

XAU/USD 4-hour Chart

Gold is back in the overbought region of the Relative Strength Index (RSI), however, which indicates a risk of a pullback unfolding. This might drag the Gold price back down before it pushes higher. Such a pullback might be expected to correct to support at around $2,500. 

Gold is in a broad uptrend on the short, medium and long-term time frames, however, and given “the trend is your friend”, this uptrend is more likely than not to continue.