- Gold prices lack firm intraday direction on Monday amid a combination of divergent forces.
- A positive risk tone limits gains, although geopolitical risks and Fed rate cut expectations provide support.
- Traders also appear reluctant ahead of key US inflation figures due out this week.
Gold (XAU/USD) price is struggling to capitalize on its gains recorded over the past two days and is hovering in a tight trading range during the Asian session on Monday. A generally positive tone around the equity markets seems to be acting as a headwind for the safe-haven precious metal, although a combination of factors should help limit any significant decline. The risk of further escalation of geopolitical tensions in the Middle East should put a damper on any optimism in the markets. Moreover, dovish Federal Reserve (Fed) expectations are keeping US Dollar (USD) bulls on the defensive and should offer support to the underperforming yellow metal.
Traders also seem reluctant and might prefer to wait on the sidelines ahead of the release of the latest US inflation figures this week before opening aggressive directional bets around the gold price. The US Producer Price Index (PPI) is due out on Tuesday, followed by the US Consumer Price Index (CPI) on Wednesday. In addition to this, the US retail sales data on Thursday will influence expectations on the Fed’s policy path, which will, in turn, boost demand for the USD and provide some significant impetus to the XAU/USD. In addition to this, geopolitical developments will help determine the near-term trajectory of the commodity.
Daily Market Wrap: Gold Price Draws Support From Middle East Tensions, Dovish Fed Expectations
- The Israel Defense Forces (IDF) intercepted approximately 30 projectiles that were identified crossing from Lebanon into northern Israel early Monday morning.
- The Israeli Air Force and Military Intelligence Directorate have been put on high alert following sightings in western Iran suggesting an imminent attack.
- Hamas leaders are calling on mediators in ceasefire negotiations with Israel to present a plan based on previous talks rather than engaging in new ones.
- The US is strengthening its capabilities in the Middle East by sending an additional guided missile submarine to the region in light of rising regional tensions.
- The developments raise the risk of a wider conflict in the region and lend support to the safe-haven gold price amid dovish Federal Reserve expectations.
- Market participants have fully priced in a 25 basis point rate cut by the Fed at the September policy meeting and see an equal likelihood of a larger 50 bp cut.
- This does not help the US Dollar to attract significant buying and turns out to be another factor that acts as a tailwind for the unyielding yellow metal.
- The commodity, however, lacks bullish conviction as investors await the release of the latest US inflation figures this week before placing directional bets.
- The US Producer Price Index (PPI) and the US Consumer Price Index (CPI) will be released on Tuesday and Wednesday, respectively, followed by US retail sales on Thursday.
- This could determine future Fed policy decisions, which, together with geopolitical developments, should provide a fresh directional impetus to XAU/USD.
Technical Outlook: Gold price bulls have the upper hand; they could aim to challenge the all-time high near $2,483-$2,484 zone
From a technical perspective, the recent bounce from the 50-day simple moving average (SMA) support favors bullish traders. Moreover, oscillators on the daily chart remain in positive territory. That said, the lack of a strong follow-through warrants some caution before positioning for any significant appreciating move. Meanwhile, any subsequent move higher is likely to face some resistance near the $2,448-$2,450 region. Some follow-through buying should pave the way for a move towards challenging the all-time high near the $2,483-$2,484 zone touched in July. This is followed by the psychological level of $2,500, which if decisively breached will set the stage for a further appreciating move in the near term.
On the other hand, the breakout point of the $2,412-$2,410 horizontal resistance now seems to protect the immediate downside before the $2,400 round-trip level. Any further decline could continue to attract buyers on dips and remain cushioned near the 50-day SMA support, currently situated near the $2,373-$2,372 region. The latter should act as a pivotal point, below which gold price could slide to the late-July low, around the $2,353-$2,352 zone, which now coincides with the 100-day SMA support. A convincing break below it will shift the short-term bias in favor of bearish traders and trigger aggressive technical selling.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In order to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
