XAUUSD Analysis – Further Downside in Gold possible as Risk Premium unwinds

Golds safe haven status was reaffirmed as markets opened on the 9^th of October to the news of conflict in the Middle East, this saw XAUUSD go on an impressive run, rallying almost 10%, breaking the psychological 2000 USD an ounce level and hitting 6-month highs.

This week we have seen some of that risk premium unwind as reduced haven flows and profit takers are putting pressure on the price, this accelerated in Wednesday’s session on news that a possible humanitarian pause is possible in the ongoing conflict.

The chart below shows the strong relationship between the inverted US 10-Year yield and gold and is clear where haven demand and risk premium pushed gold higher away from the fundamental relationship it has with this yield (highlighted in orange box). This gives us a clue of where the fair value of gold is without the conflict driven buying. A trading opportunity for a “gap fill” trade of the inverted yield and the gold price opens up.

Possible TP is a cross of the inverted yield and the price.

Possible SL above the November highs

(TradingView code for US 10-year yield is US10Y)