Gold Prices Forecast: XAU/USD Rally Fueled by Middle East Tensions, Fed Pause

Highlights

• Gold ascends as geopolitical strife in the Middle East and dovish Fed remarks stoke the rally.
• Market volatility surges amid escalating Middle East conflict, buoying gold as a safe-haven asset.
• Top Fed officials hint at a pause in rate hikes, leading markets to reassess the likelihood of future tightening.

Gold Prices Rise Amid Middle East Conflict and Dovish Fed Remarks

Gold (XAU/USD) extended its gains on Tuesday, as geopolitical instability in the Middle East and dovish comments from Federal Reserve officials added fuel to its rally. The precious metal had already notched a 1.6% rise on Monday, marking its most significant one-day jump in five months, following military clashes between Israel and Hamas.

Market Uncertainties Propel Demand

The escalating conflict has injected volatility into the markets, creating a favorable backdrop for gold—a classic safe-haven asset. Additionally, the upcoming corporate earnings season and crucial U.S. inflation data this week add layers of uncertainty that make gold more attractive. Meanwhile, the dollar and bond yields were hit by comments from top-ranking Fed officials, suggesting a pause in interest rate hikes could be on the horizon.

Fed Officials Hint at Rate Pause

Fed Vice Chair Philip Jefferson and Dallas Fed president Lorie Logan indicated that soaring Treasury yields might steer the Fed away from further tightening its short-term policy rate. Their comments caused the market to reduce the probability of additional Fed rate increases. The CME Group’s FedWatch tool showed the estimated chance of a rate hike in the upcoming meeting plummeted from 27% to 14%.

Long-Term Rate Concerns

Although both officials acknowledged the ongoing battle against high inflation, they emphasized the Fed’s need for caution in further rate increases. Jefferson’s remarks, in particular, point to a sensitive risk management period where the Fed has to balance not tightening enough against being overly restrictive.

Short-Term Forecast: Bullish on Gold

Given the blend of geopolitical tensions and dovish tones from the Fed, gold seems set for a bullish short-term outlook. Investors should closely watch the minutes from the Fed’s latest meeting and U.S. inflation data due later this week for further cues. The ongoing conflict in the Middle East could also provide more upward momentum for the yellow metal.

Gold (XAU/USD) Technical Analysis

The current daily price of Gold (XAU/USD) stands at 1860.265, positioned between its main support at 1811.028 and main resistance at 1885.457.

Although well below the 200-Day moving average of 1928.386, it’s approaching the 50-Day moving average at 1904.101, suggesting limited upside potential but also less immediate downside risk.

Overall, the market sentiment leans slightly bearish given its proximity to the main support level and its position below both moving averages. Although the current price action suggests room to the upside to run.