- The price of gold is rising on Tuesday, halting its recent corrective decline from an all-time high.
- Bets on further Fed rate cuts and geopolitical risks continue to work in favor of the XAU/USD pair.
- Traders are now eagerly awaiting the release of key US macro data that could give them a significant boost.
The price of gold (XAU/USD) ended lower for a second straight day on Monday amid optimism about China’s stimulus and relatively hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell. This, in turn, has resulted in more profit taking after the recent rally to the all-time high reached last week, although the corrective pullback has stalled near the support zone at $2,625-$2,624. Nevertheless, the precious metal posted its biggest quarterly gains since the start of 2020 and appears poised to continue its established upward trend.
Incoming weaker macroeconomic data from the US, combined with a further slowdown in inflation, should allow the Fed to further reduce interest rates. This, combined with rising geopolitical tensions in the Middle East and the risk of wider conflict, should continue to support the safe-haven gold price. This, along with expectations that Chinese stimulus measures will revive physical demand, is helping the XAU/USD pair attract some buyers during Tuesday’s Asian session and confirms the near-term positive outlook ahead of key US macro data.
Daily Digest Market Changes: Gold Price May Continue to Attract Haven Inflows Amid Rising Tensions in the Middle East
- A raft of stimulus measures introduced by China last week continued to boost investor appetite for riskier assets and, for the second straight day on Monday, caused some cash flows to flow away from the established safe-haven gold price.
- Moreover, Federal Reserve Chairman Jerome Powell has taken a more hawkish tone on the economy and said he thinks two consecutive 25-basis-point rate cuts this year will be the benchmark if the economy performs as expected.
- Markets reacted quickly and tempered expectations for more aggressive Fed easing, which resulted in continued profit-taking on the unprofitable yellow metal and contributed to the decline.
- Meanwhile, markets continue to price in the possibility of the Fed cutting interest rates too far by the end of this year, which, combined with ongoing geopolitical tensions, acts as a tailwind for the safe-haven precious metal.
- Israeli forces launched constrained, localized and targeted airstrikes in Lebanon two days after the head of the Hezbollah armed group Hassan Nasrallah was killed in an airstrike, threatening to worsen the crisis in the Middle East.
- Last week, Israel rejected a proposal from the United States and France calling for a 21-day ceasefire on the border with Lebanon to allow time for a diplomatic settlement that would allow displaced civilians from both sides to return home.
- Traders are now looking to U.S. economic data – including the release of ISM manufacturing PMIs and the opening of JOLTS job openings – for some momentum ahead of other key macro data scheduled for the start of the up-to-date month.
Technical Outlook: Gold price finds support near the uptrend channel resistance breakout near $2,625-$2,624
From a technical perspective, the appearance of some buying near the $2,625-$2,624 area confirms the support marked by the short-term resistance breakpoint of the uptrend channel and should act as a turning point. Some follow-up selling could push the gold price down to the $2,600 level, which, if broken decisively, could pave the way for significant declines in the near term. The XAU/USD pair may then fall to the intermediate support at $2,560 on its way to the $2,535-$2,530 region.
On the other hand, the $2,656-2,657 horizontal zone could provide some resistance to the $2,672 area and $2,685-2,686 region, the record high reached last week. Just behind it is the $2,700 level, which, if broken, will be seen as a up-to-date impetus for bullish traders and set the stage for an extension of the multi-month uptrend.
