The price of gold (XAU/USD) climbed to its highest level in over a week during Thursday’s Asian session, albeit without strong bullish momentum, remaining below the crucial 50-day Simple Moving Average (SMA) resistance. This movement comes amid recent US economic data suggesting easing inflationary pressures and a slowdown in economic growth, sparking speculation that the Federal Reserve (Fed) may implement two interest rate cuts this year. Such expectations have driven investors towards the non-yielding yellow metal.
Furthermore, geopolitical tensions and renewed political uncertainties in Europe have provided additional support to gold, known for its safe-haven appeal. However, the Fed’s recent adoption of a more hawkish stance, coupled with a rebound in US Treasury bond yields, has bolstered demand for the US Dollar (USD), thereby capping further gains for XAU/USD. Additionally, a positive risk sentiment in markets has added to the challenges in sustaining upward momentum for gold.
Key Factors Influencing Gold’s Movement
The uncertainty surrounding the Fed’s interest rate policy timeline has kept traders cautious, resulting in subdued and range-bound trading activity for gold prices. The Fed’s projection of only one interest rate cut for the year, down from the previously anticipated three cuts in March, has bolstered US Treasury bond yields, thereby limiting upside potential for gold.
Moreover, recent US economic indicators, including lackluster retail sales and subdued consumer and producer prices, suggest a conducive environment for the Fed to consider monetary easing in the near future. Market expectations now lean towards a potential rate cut in September, with the possibility of another later in the year, providing some underlying support to XAU/USD.
Geopolitical Developments and Market Sentiment
Heightened geopolitical risks stemming from Ukrainian drone strikes on Russian energy infrastructure and escalating tensions in the Middle East, particularly Israel’s warnings of a forthcoming conflict with Iran-backed Hezbollah, have bolstered demand for safe-haven assets like gold. Additionally, concerns over potential fiscal policy shifts in France have further supported investor interest in safe-haven assets, acting as a buffer against significant declines in gold prices.
Investor focus is now turning to upcoming events such as the Swiss National Bank (SNB) decision and the Bank of England (BoE) policy meeting, which are expected to inject volatility into the market and potentially influence gold prices. Furthermore, attention will be on upcoming US economic releases, including Weekly Initial Jobless Claims, Philly Fed Manufacturing Index, Building Permits, and Housing Starts, for further trading cues.
Technical Outlook
Technically, bullish sentiment in gold may strengthen upon a sustained breakthrough above the 50-day SMA resistance, currently situated around the $2,344-2,345 range. Such a move would signal a potential upward extension towards resistance levels at $2,360-2,362, then $2,387-2,388, en route to the $2,400 milestone and possibly revisiting the all-time peak near $2,450 reached in May.
Conversely, initial support for XAU/USD is likely around the $2,320-2,318 zone, followed by psychological support at $2,300. A breach below the horizontal support at $2,285 could trigger renewed selling pressure, potentially pushing gold prices lower towards support levels near $2,254-2,253 and eventually testing the $2,225-2,220 range and the $2,200 mark.
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