Gold price struggles to capitalize on the Asian session uptick to a two-month high.
A positive risk tone and a modest USD uptick acted as a headwind for the XAU/USD pair.
Trade uncertainties and geopolitical risks should limit losses for the precious metal ahead of the FOMC meeting.
Gold price (XAU/USD) retreated slightly from its highest level since April 22, touched during the Asian session this Monday, though any meaningful corrective slide seems elusive. Against the backdrop of persistent trade-related uncertainties, a further escalation of geopolitical tensions in the Middle East turns out to be a key factor benefiting the safe-haven bullion. Apart from this, the growing acceptance that the Federal Reserve (Fed) would lower borrowing costs further lends additional support to the non-yielding yellow metal.
Traders, however, seem reluctant to place aggressive directional bets and opt to wait for the outcome of a two-day FOMC policy meeting on Wednesday. In the meantime, the US Dollar (USD) is looking to build on its modest recovery from a three-year low touched on Friday, acting as a headwind for the Gold price. Moreover, a generally positive tone around the equity markets contributes to capping the upside for the precious metal. Nevertheless, the fundamental backdrop seems tilted in favor of the XAU/USD bulls.
Daily Digest Market Movers: Bulls turn cautious ahead of the crucial Fed policy decision on Wednesday
Iran launched a new barrage of missiles and drones at Israel on Sunday evening, while the latter said that it began another series of strikes on military targets across Iran. Deadly strikes between Israel and Iran continued into Monday, with Israel vowing to intensify its operation against Iran.
This comes on top of persistent uncertainty surrounding US President Donald Trump's trade policies and lifts the safe-haven Gold price to a nearly two-month peak during the Asian session on Monday. A combination of factors, however, keeps a lid on any further gains for the commodity.
The markets, so far, have reacted little to the heightened military conflict between Israel and Iran, which is evident from a positive tone around the Asian equities. Adding to this, a modest US Dollar uptick contributes to capping the precious metal and prompts some intraday selling.
Any meaningful USD upside, however, seems elusive as traders might opt to wait for more cues about the Federal Reserve's rate cut path before placing fresh directional bets. Hence, the focus remains on the crucial FOMC policy decision, scheduled to be announced on Wednesday.
The US central bank is widely expected to keep interest rates unchanged. However, traders have been pricing in the possibility that the Fed would change its stance that interest rates will remain unchanged in the near term amid softer US inflation and signs of a cooling economy.
The outlook will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the XAU/USD. In the meantime, the risk of a further escalation of geopolitical tensions in the Middle East might continue to act as a tailwind for the yellow metal.
Gold price constructive technical setup backs dip-buyers; the $3,400 mark holds the key for bulls
From a technical perspective, Friday's breakout through the $3,400 mark, the formation of an ascending trend channel on short-term charts, and positive oscillators on the daily chart favor the XAU/USD bulls. Hence, any further corrective slide could be seen as a buying opportunity and remain limited. Some follow-through selling below the $3,400 mark, however, should pave the way for deeper losses toward the $3,360 area, representing the lower end of the ascending channel. A convincing break below the latter would negate the constructive outlook and shift the near-term bias in favor of bearish traders.
On the flip side, momentum beyond the Asian session peak, around the $3,452-3,453 area, should allow the Gold price to aim towards challenging the all-time peak, around the $3,500 psychological mark touched in April. The said handle coincides with the top boundary of the ascending channel, which, if cleared decisively, will be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent well-established uptrend.
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