Gold soars above key resistance on Middle East tensions, pre-Fed decision
- Gold price surpasses $2,400 after Israel's attack on Lebanon.
- US Treasury yield dip and weak USD support Gold price despite strong US job market data.
- Europe’s largest economy, Germany, enters recession, fueling ECB rate cut expectations in September.
Gold prices jumped during Tuesday’s North American session on news of Israel’s attack on Lebanon, which sent the XAU/USD spot price soaring above the $2,400 figure. Earlier, the golden metal hovered around the latter, even though solid US data reinforced the tightness of the jobs market. The XAU/USD trades at $2,404, up by more than 0.80%.
Sentiment is mixed, though a dip in US Treasury bond yields and the Greenback sponsored bullion’s leg up as market participants brace for the Federal Reserve (Fed) monetary policy decision on Wednesday.
Economic data from Europe witnessed Germany, the largest economy in the block, entering recessionary territory following weaker-than-expected preliminary Gross Domestic Product (GDP) Q2 2024 readings. This could spur a reaction from the European Central Bank (ECB), which is expected to reduce interest rates in September.
Meanwhile, geopolitical risks spurred Gold’s jump above $2,400 after Israel launched an attack on Beirut’s southern suburbs, aimed at targeting a Hezbollah commander, according to sources cited by Reuters.
Across the pond, the Fed is expected to hold rates flat but to deliver a dovish message that could hint to market participants at the beginning of the easing cycle.
Nevertheless, US jobs data revealed on Tuesday could deter the Fed from reacting dovishly after job openings for June exceeded estimates despite trailing revised figures of May upward. In fact, market players expect Fed Chair Jerome Powell to push back against aggressive monetary policy pricing by the financial markets.
Besides that, investors are eyeing the release of the Institute for Supply Management (ISM) Manufacturing PMI and the Nonfarm Payrolls (NFP) report, both for July figures.
Daily digest market movers: Gold price shrugs off strong US jobs data
- US Job Openings and Labor Turnover Survey (JOLTS) reported 8.184 million job openings, exceeding estimates of 8 million but slightly lower than May’s revised figure of 8.23 million.
- Conference Board reveals that Consumer Confidence in July unexpectedly rose to 100.3, surpassing the consensus of 99.7 and June’s downwardly revised figure of 97.8 from 100.4.
- Last week’s US inflation data indicated continued progress toward the 2% target; however, inflation appears stickier than anticipated as June's Core PCE figures exceeded estimates for both monthly and yearly numbers.
- Data from the Chicago Board of Trade (CBOT) indicates that traders are pricing in 54 basis points (bps) of easing toward the end of the year, according to the December 2024 fed funds rate futures contract.
Technical analysis: Gold price climbs above $2,400
Gold price remains upwardly biased, and if it achieves a daily close above $2,400 that could pave the way for further upside. Momentum indicates the path of least resistance is skewed to the upside, yet the Fed’s decision or Powell press conference could drag prices lower.
If XAU/USD buyers reclaim the psychological $2,450 area, that could sponsor a leg up to challenge the all-time high at around $2,483, followed by the $2,500 mark.
On the flip side, if XAU/USD falls below $2,400, the next support would be the 50-day Simple Moving Average (SMA) at $2,358. Once cleared, further losses are on the cards.
The next support would be the July 25 daily low of $2,353. Once those levels are removed, the 100-DMA would be up next at $2,326, ahead of diving to the $2,300 mark.
Gold FAQs
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.
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.
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.
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.
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