Gold (XAU) Price Forecast: Will Geopolitical Tensions Push Prices Beyond $2,500?

Gold Prices Retreat as Investors Trim Positions

Gold prices retreated on Tuesday as traders took profits following Monday’s record high close. After hitting an all-time peak of $2,483.60 on July 17, spot gold prices have surged nearly 19% this year.

However, with crucial U.S. inflation data on the horizon, investors are cautious. Market participants are eyeing the Producer Price Index (PPI) and Consumer Price Index (CPI) reports, which could significantly impact the Federal Reserve’s upcoming policy decisions.

At 10:55 GMT, XAU/USD is trading $2462.55, down $9.58 or -0.39%.

Geopolitical Tensions Keep Gold Supported

Gold’s upward momentum has been fueled by escalating geopolitical risks, particularly in the Middle East. The recent assassination of Hamas leader Ismail Haniyeh in Iran has raised fears of a broader conflict, keeping markets on edge. In response, the U.S. has ramped up its military presence in the region, sending additional forces and equipment to defend Israel. This ongoing uncertainty is likely to sustain support for gold, traditionally a safe-haven asset during times of geopolitical instability.

U.S. Inflation Data in Focus

Investors are eagerly awaiting the release of U.S. inflation data, with the PPI set to be released on Tuesday, followed by the CPI on Wednesday. The PPI is expected to show a 0.2% increase for July, mirroring June’s performance. These figures are crucial as they will inform the Federal Reserve’s decision-making process, with markets currently pricing in a 50% chance of a 50-basis point rate cut in September. Stable Treasury yields, with the 10-year and 2-year yields holding steady at around 3.919% and 4.021%, respectively, are also a factor in the gold market’s near-term outlook.

Gold ETFs See Renewed Interest

The anticipation of rate cuts has sparked renewed interest in gold-backed exchange-traded funds (ETFs), which had been experiencing outflows in recent years. July saw the largest monthly inflow into gold ETFs since March 2022, with 48.5 metric tons of bullion, valued at $3.7 billion, added to global holdings. This trend reflects growing investor confidence in gold’s future, particularly as a hedge against potential economic downturns.

Market Forecast: Gold Likely to Test $2,500

If gold prices remain above the $2,430 level, the market could establish a strong base to challenge the $2,500 threshold. Analysts at ANZ have raised their year-end gold price target to $2,550, driven by expectations of an imminent rate-cutting cycle from the Federal Reserve. However, any signs of de-escalation in geopolitical tensions or stronger-than-anticipated economic data could temper the bullish momentum. For now, the combination of geopolitical risks and favorable monetary policy expectations suggests a positive outlook for gold in the near term.

Technical Analysis

Gold (XAU/USD) is lower, but within striking distance of its double-top at $2477.73 and $2483.74. A sustained breakout above these levels could create the momentum needed to challenge the psychological $2500.00 level. The best sign of strong buying will be if traders start to bid the old tops following the intial breakout.

When playing breakouts at record highs, investors always have to be weary of the whip-saw trade. The best sign of strong buying will be if traders start to bid the old tops following the intial breakout.

The major support remains the uptrending 50-day moving average at $2376.53.