Gold price (XAU/USD) has been making gains with risk appetite returning as geopolitical fears ease. This has been fueled by reports suggesting that Israel is looking to avoid a full-scale war in the Middle East, resulting in the safe-haven US Dollar trimming some of its gains. Additionally, hopes that the Federal Reserve might hint towards monetary easing during its upcoming meeting have kept US Treasury yields near mid-term lows. The focus is now on the Fed’s monetary policy decision, with investors anticipating a possible easing cycle to begin before December. This anticipation could potentially harm the US Dollar and support precious metals like gold.
In terms of market movements, gold has regained some of the ground lost on Monday and is within the recent range as concerns of a full-blown war in the Middle East have subsided. The Israeli authorities have expressed their desire to retaliate against Hizbullah but aim to avoid escalating the situation into a regional war. The market is also awaiting the Consumer Sentiment Index and US JOLTS Job Openings data, which are expected to show some deterioration. The upcoming Fed meeting has reignited expectations of a possible exit from the restrictive cycle, with US 10-year yields hovering near four-month highs. The likelihood of a rate hike in September is currently at 100%.
From a technical analysis perspective, XAU/USD is facing resistance below the $2,400 level, with a corrective decline after hitting nearly $2,500 in mid-July. The pair found support at the 61.8% Fibonacci retracement level and a higher low was recently observed, indicating a potential end to the correction. The RSI indicator is signaling a possible upward movement, with the precious metal possibly needing additional support to breach the $2,400 resistance area. Overall, market sentiment is hinging on today’s data releases and the Fed’s decision on Wednesday.
Gold has a significant historical role as a store of value and medium of exchange. In the current context, the precious metal is considered a safe-haven asset, making it an appealing investment during times of uncertainty. Central banks are major holders of gold as they seek to diversify their reserves and bolster their perceived economic strength. Countries like China, India, and Turkey have been rapidly increasing their gold reserves. Gold has an inverse relationship with the US Dollar and US Treasuries, making it an attractive option for diversifying assets during turbulent times.
Various factors can influence the price of gold, including geopolitical instability, fears of a recession, and changes in interest rates. Gold tends to rise in value during times of lower interest rates, while a stronger US Dollar can limit price movements. The asset is priced in US Dollars, so changes in the currency can impact the price of gold. In conclusion, the current market conditions suggest a positive trend for gold prices as geopolitical tensions ease and investors await the Fed’s decision, signaling a potential easing cycle that could support precious metals in the near future.
