Gold price drops to over two-week low, flirts with $2,300 amid easing Middle East worries

■  Gold price drifts lower for the second successive day amid receding geopolitical tensions. 

■  Reduced Fed rate cut bets continue to underpin the USD and contribute to the downfall.

■  The fundamental backdrop warrants some caution before placing aggressive bearish bets.

Gold price (XAU/USD) plunged over 2% on Monday and registered its biggest daily loss since June 13, 2022, amid receding fears about a wider Middle East conflict, which dented demand for traditional safe-haven assets. Apart from this, reduced bets for interest rate cuts by the Federal Reserve (Fed) drag the non-yielding yellow metal to sub-$2,300 levels, or over a two-week low during the Asian session on Tuesday. 

With the latest leg down, the Gold price has corrected over 5% from the all-time peak touched earlier this month. Any further decline, however, seems limited in the wake of speculation that major central banks will cut interest rates this year. Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of this week's key US macro releases, starting with the flash PMIs on Tuesday.

The focus, meanwhile, remains glued to the Advance US Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index, scheduled for Thursday and Friday, respectively. The crucial data will play a key role in influencing expectations about the Fed's future policy decisions and drive the US Dollar (USD) demand, which, in turn, should provide some meaningful impetus to the Gold price. 

Daily Digest Market Movers: Gold price is weighed down by easing fears of a wider conflict in the Middle East

Iran signaled that it has no plans to retaliate against the Israeli limited-scale missile strike on Friday, which, in turn, drives flows away from the safe-haven Gold price for the second straight day on Tuesday.

Stronger-than-expected US payrolls data, along with the hotter consumer price inflation and hawkish comments from Federal Reserve officials, forced investors to scale back their bets for US interest rate cuts.

The current market pricing suggests that the Fed could start its rate-cutting cycle in September and deliver only 34 basis points, or less than two rate cuts in 2024 as compared to three projected by the central bank. 

The yield on the benchmark 10-year US government bond holds steady just below a five-month high touched last week and continues to act as a tailwind for the US Dollar, further exerting pressure on the XAU/USD. 

Concerns about slowing global economic growth support prospects for synchronized interest-rate cuts by most major central banks in the second half of this year, which, in turn, could lend support to the commodity.

Traders look to the flash global PMI prints on Tuesday, which, along with the Advance US Q1 GDP report and the US Personal Consumption Expenditures (PCE) Price Index later this week, should provide a fresh impetus. 

Technical Analysis: Gold price seems vulnerable below 23.6% Fibo., bears await acceptance below $2,300 mark

From a technical perspective, a sustained break and acceptance below the 23.6% Fibonacci retracement level of the February-April rally support prospects for a further intraday depreciating move. That said, oscillators on the daily chart – though they have been losing traction – are still holding in the positive territory and warrant some caution for bearish traders. Hence, it will be prudent to wait for some follow-through selling below the $2,300 mark before positioning for deeper losses. The Gold price might then slide to the $2,260-2,255 area, or the 38.2% Fibo. level, before dropping to the $2,225 intermediate support en route to the $2,200-2,190 confluence, comprising the 50% Fibo. level and the 50-day Simple Moving Average (SMA). 

On the flip side, any attempted recovery might now confront immediate resistance near the $2,325 region. A sustained move beyond, however, should allow the Gold price to accelerate the momentum towards the $2,350-2,355 intermediate hurdle en route to the $2,380 supply zone. This is closely followed by the $2,400 round figure, and the all-time peak near the $2,431-2,432 area, which, if cleared, will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent blowout rally witnessed over the past two months or so.