Gold News: Fed Dovish Signals, Geopolitical Risks Strengthen Gold’s Appeal

Gold Prices Rise Amid Fed Rate Cut Expectations and Geopolitical Tensions

Gold prices edged higher on Tuesday as traders weighed Federal Reserve officials’ comments and growing geopolitical risks. The precious metal’s value increased despite a rebound in Treasury yields, showcasing the intricate interplay of factors influencing its market performance.

At 11:04 GMT, XAU/USD is trading $2411.91, up $2.015 or +0.08%.

Federal Reserve Outlook

San Francisco Fed President Mary Daly indicated that interest rate cuts are likely later this year, though she refrained from specifying timing or extent. “Policy adjustments will be necessary in the coming quarter,” Daly stated, emphasizing the importance of not allowing the labor market to slow excessively. Chicago Fed President Austan Goolsbee echoed this sentiment, noting the Fed’s readiness to “fix” economic troubles if necessary.

Market Expectations

Traders now anticipate 110 basis points of easing from the Fed this year, with a 70% chance of a 50 basis point cut in September. These expectations are supporting gold prices, as lower interest rates typically boost the appeal of non-yielding assets like gold. The market’s reaction follows the Fed’s recent decision to hold interest rates steady, with Chair Jerome Powell hinting at a potential September rate cut.

Economic Indicators

Recent U.S. economic data has been mixed, contributing to market uncertainty. While the services sector showed improvement in July, weaker-than-expected job reports have raised concerns about economic growth. The U.S. trade deficit figures for June, set to be released on Tuesday, will be closely watched by market participants for further insights into economic conditions.

Treasury Yield Movements

The yield on the benchmark 10-year Treasury note traded more than 5 basis points higher at 3.8371%, rebounding from its lowest level since June 2023. Similarly, the 2-year Treasury yield increased by over 7 points to 3.9627%. These yield movements typically impact gold prices inversely, yet gold has managed to rise despite the yield rebound.

Geopolitical Risks

Tensions in the Middle East are escalating, with Israel preparing for a potential attack from Iran following the assassination of a Hamas leader. Bob McNally, president of Rapidan Energy, warned that tensions are “climbing the escalation ladder.” This geopolitical uncertainty is likely to increase safe-haven demand for gold.

Global Market Context

Global markets, including Japanese stocks, showed signs of recovery following Monday’s significant downturn. This volatility underscores the complex factors influencing investor sentiment and, by extension, gold prices.

Market Forecast

The short-term outlook for gold appears bullish. If upcoming U.S. economic data is weaker than expected and the Fed adopts a more dovish stance, gold prices could potentially reach $2,500 or higher. The combination of rate cut expectations, economic uncertainties, and geopolitical tensions is creating a favorable environment for gold prices to rise. Traders will also be monitoring data from top gold consumer China, which could further influence price movements.

Technical Analysis

XAU/USD is inching higher on Tuesday, trying to clawback yesterday’s steep decline. Despite finding support on the 50-day moving average at $2367.18, the market faces headwinds at $2477.73 and $2483.74. Overtaking the latter will produce another record high.

On the downside, the major support is the 50-day MA. A failure to hold this level could start the ball rolling for further losses with $2277.34 to $2293.69 a potential target zone.