Middle East Crisis: Is the US Dollar Ultimate Beneficiary or Gold?

The US dollar has maintained the upper hand, but gold remains the real winner. The gold spot price has gained around 49% in the last 52 weeks. However, the Dollar Index has seen a loss of around 6% in the same period.

Gold Price Technical Analysis

Gold’s weekly chart shows a strong bullish trend with multiple bullish waves since November 2022. It’s remarkable that it went from the $1,630s to marking a fresh all-time high of around $2,683. The chart shows three bullish flags with plenty of engulfing and pin bars, indicating there is no respite for the sellers. The chart also shows some fake bearish pin bars that might work on lower timeframes. However, the downside is always corrective in nature.

If you draw a Fibonacci retracement from the Nov 22 lows to the Sep 24 top, you find a neat 38% retracement level of $2,280. Now, the probability of testing this level is a bit low, or it may take even longer if it continues to hit fresh all-time highs above $2,700.

Applying the Fibonacci extension tool tells you the next upside level could be $2,807. However, this may not be a straight path; rather, it would come with several ups and downs amid profit-taking and potential dollar revival.

The lower timeframes, like 5-minute or 15-minute, are tricky for gold. You may see downtrends from time to time. However, that’s only a short retracement of a big up move. Hence, the key is to keep an eye on the higher timeframes for confirmation.

The coming week will see a retracement to the $2,600-15 area due to potential profit taking. The metal tried twice but failed to break the previous top. Hence, the probability of testing support is high. Alternatively, on breaking the $2,683 level, we may see a test of a fresh top at $2,700.

Key Resistance Levels

Resistance 1: $2,683, which is an all-time high

Resistance 2: $2,700, a psychological mark

Resistance 3: $2,807, 61.8 Fib extension

Key Support Levels

Support 1: $2,600 which is a psychological support

Support 2: $2,540, an order block

Support 3: $2,425, 23.6 Fib retracement level

Gold’s Fundamental Analysis

After COVID-led strong inflation, central banks adapted to tightening policy, which attracted investors to yields and bonds. However, the Russia-Ukraine war and then the Middle East crisis hit the market. Investors fled safe-haven assets, and gold remained the top asset during risk-averse times.

Now, the Fed has aggressively cut rates and hinted at another 50 bps cut in the coming two meetings. The ECB, BoE, and SNB have already started reducing borrowing costs. Moreover, central banks have been buying gold. Hence, gold’s demand has risen sharply.

The coming week is important for gold as Israel has aggressively responded to Lebanon and Iran along with Hamas. Escalation may result in further risk-off sentiment.

Bottom line

Gold has been the top priority for investors in a risk-averse environment. Moreover, the US dollar has struggled to find ground since August 2024 due to the Fed’s easing policy until mid-2025. Hence, the gold’s uptrend remains intact given the escalated Israel’s conflict in the Middle East.

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