XAU/USD may be on the defensive unless geopolitical risks increase – HSBC

Caught in the twin grip of elevated US yields and a stronger USD, Gold may be on the defensive over the near term unless geopolitical risks escalate, economists at HSBC report.

Increasing geopolitical risks could help sustain Gold price

We are not convinced the rally can be sustained beyond the near term. Oil prices have eased for three days in a row (Bloomberg, 24 October 2023). This may be key, as it is difficult to envisage much greater geopolitical risk-led demand for Gold if Oil prices are easing.

Gold is historically sensitive to US real yields and, while there could be a disconnect in this relationship, it has re-emerged and is likely to weigh further on Gold.

As we expect ongoing USD strength, this will likely limit Gold rallies and may even act to press XAU/USD lower.

Escalating geopolitical and trade risks are playing an increasingly supportive role in Gold prices, engineering rallies that are likely to stay high in 2024.