US bond yields have recently been on a bullish run, with yields soaring across the Treasury curve. The 10-year note, for example, has risen above 4.95%, its highest level since 2007. Against this backdrop, the US dollar, as measured by the DXY index, has maintained a largely positive bias, trading near its best levels since late 2022.
Despite the unfriendly environment for precious metals, gold prices (XAU/USD) have managed to gain around 8% from their October lows. Although key fundamentals remain relatively bearish for bullion, geopolitics have become a key driver of strength in recent days following Hamas attacks in Israel.
Looking at the specifics, traders are concerned that the situation in the Middle East will get worse before it gets better. The prevailing view is that Israel will soon launch a ground invasion of the Gaza Strip in response to the latest terrorist events, a move that has the potential to raise tensions and draw other actors into the conflict, such as Lebanon or Iran.
Any escalation in the Israeli-Hamas conflict could raise the temperature in the region, leading to volatility and increased uncertainty. Gold tends to thrive in turbulent environments, so it would not be surprising to see further short-term gains, especially if fear grips the markets. In this particular environment, changes in yields may not have a significant impact.
From a technical point of view, gold futures have enjoyed a solid rally this month, successfully breaking through several key levels. After the latest moves, XAU/USD is steadily approaching resistance at $1,985, which is the 61.8% Fib retracement of the May/October slide. Traders will want to keep a close eye on price action in this area, as a breakout could set the stage for a retest of the $2,015 level.
