- The price of Gold rises on Tuesday and stops its recent correction from the all-time high.
- Expectations of further rate cuts by the Fed and geopolitical risks continue to benefit XAU/USD.
- Traders now await the release of key US macroeconomic data for significant momentum.
The price of Gold (XAU/USD) ended in the red for the second day in a row on Monday amid optimism over China stimulus and relatively hawkish comments from Federal Reserve (Fed) Chair Jerome Powell. This, in turn, sparked some follow-up profit taking after the recent rally to the all-time high touched last week, although the correction stops near the $2,625-2,624 support zone. However, the precious metal posted its best quarterly gains since the beginning of 2020 and appears poised to extend its well-established bullish trend.
Weaker US economic data, coupled with a continued slowdown in inflation, should allow the Fed to cut interest rates further. This, along with escalating geopolitical tensions in the Middle East and the risk of broader conflict, should continue to benefit the safe-haven gold price. This, along with expectations that China’s stimulus measures will revive physical demand, helps XAU/USD attract some buyers during the Asian session on Tuesday and validates the positive near-term outlook ahead of key US macroeconomic data. US
Daily summary of market drivers: Gold price could continue to attract safe haven flows amid escalating tensions in the Middle East
- A series of stimulus measures from China last week continued to boost investor appetite for riskier assets and diverted some flows from the safe-haven gold price for the second day in a row on Monday.
- Additionally, Federal Reserve Chair Jerome Powell took a more hawkish tone on the economy, saying he sees two more 25 basis point interest rate cuts this year as a baseline if the economy performs as expected.
- Markets reacted quickly and lowered expectations for more aggressive policy easing from the Fed, sparking follow-on profit-taking around the non-yielding yellow metal and contributing to the decline.
- Meanwhile, markets are still pricing in the possibility of a larger-than-expected Fed rate cut by the end of the year, which, along with lingering geopolitical tensions, acts as a tailwind for the safe-haven precious metal.
- Israeli forces have begun limited, localized and targeted ground incursions into Lebanon two days after the head of the armed group Hezbollah, Hassan Nasrallah, was killed in an airstrike, threatening to escalate the crisis in the Middle East.
- Israel last week rejected a US-French proposal calling for a 21-day ceasefire on the Lebanese border to allow time for a diplomatic agreement that would allow displaced civilians on both sides to return to their homes.
- Traders now look to the US economic docket, which includes the release of the ISM Manufacturing PMI and JOLTS job openings, to get a boost ahead of other key macroeconomic data scheduled for the start of a new month.
Technical Outlook: Gold price finds support near the resistance breakout point of the uptrend channel, around the $2,625-2,624 zone
From a technical perspective, the emergence of some buying near the $2,625-2,624 area reaffirms a support marked by a resistance breakout point of the short-term uptrend channel and should act as a pivotal point. Some follow-through selling could drag the price of Gold towards the $2,600 mark, which if broken decisively could pave the way for a significant decline in the near term. XAU/USD could then decline to the intermediate support at $2,560 en route to the $2,535-2,530 region.
On the upside, the $2,656-2,657 horizontal zone could offer some resistance ahead of the $2,672 zone and the $2,685-2,686 region, or the record peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a new trigger for bullish traders and will set the stage for an extension of a several-month-old uptrend.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance 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, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons 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 since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, 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.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear 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, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
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.
