Gold prices, specifically XAU/USD, experienced a slight pullback during Monday’s European trading session, as the US Dollar gained strength. The price of gold faced resistance around the $2,400 mark earlier in the day. Geopolitical tensions in the Middle East, particularly the possibility of conflict spilling over into Lebanon, have pushed investors towards the safe-haven USD, overshadowing the upcoming Federal Reserve meeting scheduled for Wednesday. The Fed is expected to signal a dovish turn, with hopes of an easing cycle starting in September, as indicated by the Personal Consumption Expenditures (PCE) Prices Index data for June showing sticky inflation levels.
Concerns about potential conflict in Lebanon have boosted the safe-haven appeal of the US Dollar and dampened demand for gold, leading to a decrease in gold prices. Additionally, US Treasury yields are trading lower, fueled by expectations of a rate cut by the Fed in September. The CME Group’s Fed Watch tool is predicting a high likelihood of rate cuts in September, further impacting market sentiment. Economic data releases, such as the Conference Board’s Consumer Sentiment Index for July, are expected to show a decline, adding to the case for a rate cut in September.
From a technical analysis perspective, XAU/USD’s recovery has been limited, with resistance at $2,400. The 100-period Simple Moving Average (SMA) at the 4-hour chart meets downtrend resistance from July 17 highs at this level. However, downside attempts are being contained for now, with intraday RSI indicating a moderate positive momentum. Support is seen at the $2,380 level, while a breakthrough above $2,400 could negate the broader bearish structure and focus on the $2,430 level.
The US Dollar has shown strength against major currencies, with the Euro facing the most significant percentage change today. The heat map reflects the percentage changes of the US Dollar against other major currencies, with the USD/EUR pair being the strongest performer. Gold’s role as a safe-haven asset and hedge against inflation has made it a popular investment choice during turbulent times. Central banks continue to hold significant reserves of Gold to bolster their currencies and maintain economic stability, with emerging economies like China, India, and Turkey increasing their Gold holdings.
Gold has an inverse correlation with the US Dollar, US Treasuries, and risk assets, making it an attractive option for diversification during market uncertainties. Factors such as geopolitical instability, economic recessions, and interest rate movements can influence the price of gold. As an asset priced in US Dollars, the strength of the USD plays a crucial role in determining the price of gold. A strong Dollar typically exerts pressure on gold prices, while a weaker Dollar tends to push prices higher. Investors closely monitor these factors to make informed decisions regarding gold investments.
