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Gold Prices Hold on to 3-week Highs, Traders Focus on Middle East Conflict

GOLD PRICES held on to a 3-week high on Monday after speculators reminded not be too short on a “higher for longer” mantra, as traders assess if the US and its allies can prevent further escalation of the Israel-Hamas conflict, writes Atsuko Whitehouse at BullionVault.
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On Monday morning, the Israeli prime minister denied agreeing to a ceasefire in southern Gaza which would allow humanitarian aid in and for some people to vacate the area.
Israel said on Saturday that its military forces were preparing to implement a “wide range of operational offensive plans” with emphasis on significant ground operations into Gaza, a week after Hamas gunmen launched a devastating attack.
The war has claimed at least 2,450 Palestinians and 1,400 Israeli lives since 7 October.
US President Joe Biden warned that an Israeli re-occupation of Gaza would be a “big mistake” in an interview on Sunday on CBS.  He also stated that the Palestinian militant group Hamas should be eliminated entirely, but that “there must be a path to a Palestinian state.”
"If the Zionist aggressions do not stop, the hands of all parties in the region are on the trigger," Iran warned Israel as its foreign minister Hossein Amirabdollahian was quoted in the semi-official Fars news agency on Sunday.
“There is a risk of an escalation of this conflict, the opening of a second front in the north, and of course of Iran’s involvement — that is a risk,” said US national security adviser Jake Sullivan.
Israel last week exchanged fire on multiple occasions with the Lebanese militant group Hezbollah, which has stated its readiness to intervene in Israel’s conflict with Hamas.
Gold priced in the US Dollar fell by 1.3% to $1908 per ounce Monday morning but later recovered half of its decline. 
The yellow metal registered 5.5% surge last week, which includes the 3% jump on Friday to reach a 3-week high at $1933.
“Friday’s price action was a reminder to not be (fundamentally) too short on a higher for longer Fed,” said Nicky Shiels, head of metals strategy at Swiss refining and finance group MKS Pamp in the latest note. 
Managed Money in Comex Gold Futures & Options: Source BullionVault via CFTC, LBMA
Latest data shows that hedge funds and other leveraged speculators in Comex gold futures and options grew their bearish betting still further by 10% on gold as a group in the week-ending 10 October, even after Israel declared “state of war” on Hamas’s surprise attack and cut their bullish betting by 0.8%.
Short positions rose 68% since September 2023 policy meeting where ‘ Higher for longer’ was confirmed.
Overall, that pushed the net short position of Managed Money traders to the biggest since 1 November 2022, when markets expected the US Federal Reserve to go for its fourth consecutive 75 basis point interest hike, the most aggressive tightening cycle in decades.
“Fresh short positions helped turbocharged the price response to Middle East tensions as it forced a significant amount of short covering,” said derivatives platform Saxo Bank's commodity strategist Ole Hansen.
Gold priced in Pounds and Euro per ounce meantime fell on Monday 0.8% to £1579 and €1826, respectively, after climbing over 6% to 4-month highs last week.
Gold prices in the Japanese Yen also pared 0.7% of last week’s 5.7% gain to hit a fresh all-time high at ¥9297. 
In contrast, gold prices on the Shanghai Gold Exchange rose 1.4% to ¥462 per gram on Monday, which reduced a historic premium to London to $53 per ounce after wholesale bullion in the metal’s The No.1 consumer market eased the weekly average to $57 last week from the record incentive to new bullion imports at $83 before the week-long Golden Week festival.
The Dollar index – a measure of the US currency's value versus its major peers – slipped slightly but remained near a one-week high with demand for the safe-haven currency, while Benchmark 10-year US Treasury yields edged up to 4.7%, following a more than 8 basis point decline on Friday amid demand for the safety of bonds.
Oil prices steadied above $90 a barrel after climbing nearly 6% on Friday as investors priced in the possibility of a wider Middle East conflict.
The price for silver, primarily an industrial metal, which finds nearly 60% of its annual demand from industrial uses, edged lower 0.2% to $22.70 per ounce, after rising 3.9% last week.
European stocks remained calm as the STOXX 600 was up 0.2%, paring 1% drop last session, while US equity futures crept higher. 
“The geopolitical tension in the Middle East remains the key focus of the market,” said an analyst
“It might seem calmer now, but if the war widens to include other parts of the area then that means more pressure on oil and more uncertainty for the market to cope with.”


Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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