Gold hits the strong resistance amid Middle East tensions

Investor interest in gold is surging. This interest has led to a significant rise in open interest in precious metals. This increment has reached over $231 billion for the week ending October 18, according to JPMorgan Global Commodities Research. This increment shows growing confidence in gold as a safe-haven asset amidst global uncertainty. Concerns over inflation, geopolitical tensions, and economic instability largely drive investor's confidence.

Central banks worldwide have adopted accommodative monetary policies. These policies strengthen gold's appeal as a hedge against inflation and currency devaluation. The upcoming U.S. presidential election is a major factor contributing to rising gold prices. Investors are watching closely as Republican Donald Trump and Democrat Kamala Harris offer drastically different economic policies.

Trump's focus on protectionism, tax cuts, and tariffs could cause market volatility, benefiting gold. Harris's liberal fiscal policies may introduce uncertainty in fiscal and trade relations. Historically, political instability and major U.S. elections have increased the demand for gold as a hedge against economic disruptions. This trend persists as investors aim to protect their portfolios from election-related market fluctuations.

Geopolitical factors like de-dollarization talks and tensions in various regions further boost gold's appeal. Global inflationary pressures and central banks' monetary easing increase the risk of currency depreciation, making gold an attractive store of value. As these economic and political risks converge, investors favor gold to hedge against inflation and broader market volatility. Given these trends, gold prices are likely to maintain their upward momentum in the near future.

Gold reaches the strong resistance area

The technical outlook for gold remains bullish, but the rally has become overextended. The monthly chart shows an inverted pattern of head and shoulders. These patterns show the breakout from the long-term pivot at $2,075, initiating the strong move upward. The rally has marked the eighth consecutive month of gains, indicating that the price is overextended in the medium term. However, escalating geopolitical tensions in the Middle East are adding further upward pressure on the gold market.

The short-term chart shows that gold price is approaching at the resistance level of $2,760. This resistance is measured by the rising channel in 4 hours chart. 

The key question now is how to trade gold when the market is overextended. One example of trade occurred when gold was at lower levels on the daily charts. Due to ongoing geopolitical uncertainty pushing prices higher, a correction on the daily chart near support levels triggered a buy signal. Technical analysis validated this signal, and the trader placed the buy at $2,625, with a target set at $2,722. The target has been hit, but gold still looks strong. The next correction in the gold market could trigger another buy signal. Investors should trade cautiously as the market remains overextended.

Conclusion

In conclusion, gold remains a strong asset in the face of global uncertainty. Investor interest continues to grow, supported by inflation concerns, geopolitical tensions, and economic instability. Central bank policies and the upcoming U.S. election further fuel demand for gold as a safe-haven asset. Although the rally is overextended, technical analysis still identifies potential buy signals during corrections. Investors should approach with caution, but the overall outlook for gold remains bullish. Prices will likely maintain upward momentum in the near term, and traders must consider any price correction as a signal to buy.

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