Gold price consolidates in a range, bullish potential intact amid rising geopolitical risks

• Gold price lacks firm intraday direction on Monday amid a combination of diverging forces.

• A positive risk tone caps gains, though geopolitical risks and Fed rate cut bets lend support.

• Traders also seem reluctant ahead of the key US inflation figures, due for release this week. 

Gold price (XAU/USD) struggles to capitalize on its gains registered over the past two days and oscillates in a narrow trading band during the Asian session on Monday. A generally positive tone around the equity markets is seen acting as a headwind for the safe-haven precious metal, though a combination of factors should help limit any meaningful downside. The risk of a further escalation of geopolitical tensions in the Middle East should keep a lid on any optimism in the markets. Furthermore, dovish Federal Reserve (Fed) expectations keep the US Dollar (USD) bulls on the defensive and should offer support to the non-yielding yellow metal.

Traders also seem reluctant and might prefer to wait on the sidelines ahead of this week's release of the latest inflation figures from the US before placing aggressive directional bets around the Gold price. The US Producer Price Index (PPI) is due on Tuesday, followed by the US Consumer Price Index (CPI) on Wednesday. Apart from this, the US Retail Sales data on Thursday will influence expectations about the Fed's policy path, which, in turn, will drive the USD demand and provide some meaningful impetus to the XAU/USD. Apart from this, geopolitical developments will help in determining the near-term trajectory for the commodity. 

Daily Digest Market Movers: Gold price draws support from Middle East tensions, dovish Fed expectations

• The Israel Defense Forces (IDF) intercepted approximately 30 projectiles that were identified as crossing from Lebanon into northern Israel early Monday morning.

• The Israeli Air Force and Military Intelligence Directorate have been placed on high alert following observations in Western Iran, suggesting an imminent attack. 

• Hamas leaders are asking mediators of the cease-fire negotiations with Israel to present a plan based upon previous talks instead of 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 escalating regional tensions.

• The developments raise the risk of a broader conflict in the region and lend some support to the safe-haven Gold price amid dovish Federal Reserve expectations. 

• Market participants have fully priced in a 25-basis points Fed rate cut move at the September policy meeting and see an equal chance of a bigger, 50-bps rate cut. 

• This fails to assist the US Dollar in attracting any meaningful buying and turns out to be another factor acting as a tailwind for the non-yielding 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) are due on Tuesday and Wednesday, respectively, followed by the US Retail Sales on Thursday. 

• This might determine the Fed's future policy decisions, which, along with geopolitical developments, should provide a fresh directional impetus to the XAU/USD.

Technical Outlook: Gold price bulls have the upper hand; might aim to challenge all-time peak near $2,483-2,484 area

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 are holding in positive territory. That said, the lack of strong follow-through warrants some caution before positioning for any meaningful appreciating move. In the meantime, any subsequent move up is more likely to confront 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 top near the $2,483-2,484 area touched in July. This is followed by the $2,500 psychological mark, which if cleared decisively will set the stage for a further near-term appreciating move.

On the flip side, the $2,412-2,410 horizontal resistance breakpoint now seems to protect the immediate downside ahead of the $2,400 round-figure mark. Any further decline might continue to attract dip-buyers and remain cushioned near the 50-day SMA support, currently pegged near the $2,373-2,372 region. The latter should act as a key pivotal point, below which the Gold price could slide to the late July low, around the $2,353-2,352 area, which now coincides with the 100-day SMA support. A convincing break below will shift the near-term bias in favor of bearish traders and prompt aggressive technical selling.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.