Gold prices experienced a notable surge on Monday, reflecting the heightened demand for safe-haven assets amidst falling US Treasury yields and escalating tensions in the Middle East.
The price of gold rose by over 1% during the mid-North American trading session, signalilng investor concerns over both geopolitical instability and upcoming economic data from the United States.
As of Monday, gold traded at $2,467 per ounce, bouncing back from a daily low of $2,423.
This increase came as traders adjusted their positions ahead of the release of critical economic indicators, including the latest US Consumer Price Index (CPI) report for July.
Expectations are high that the CPI will show continued progress in the disinflation process, a development that could significantly impact market sentiment.
The retreat in US Treasury bond yields played a significant role in the rise of gold prices. The 10-year benchmark Treasury note yield dropped by four basis points to 3.902%, a move that reflects growing caution among investors.
This dip in yields is often associated with increased interest in gold, as lower yields reduce the opportunity cost of holding non-yielding assets like the precious metal.
The geopolitical landscape also contributed to the market’s shift towards gold. Tensions in the Middle East, particularly the ongoing conflict involving Israel, Lebanon, and Iran, have shown no signs of abating.
The absence of any meaningful efforts towards a ceasefire has kept markets on edge, driving investors to seek the relative safety that gold offers during times of uncertainty.
The potential for the conflict to escalate further has only added to the metal’s appeal as a safe-haven asset.
In addition to these factors, remarks from Federal Reserve Governor Michele Bowman provided further context to the market’s movements.
Known for her typically hawkish stance, Governor Bowman struck a more neutral tone, acknowledging the recent progress on inflation as seen in data from the last two months.
Her comments were interpreted by some as a sign that the Fed might adopt a more cautious approach in its upcoming policy decisions.
The week ahead promises to be eventful for financial markets, with a packed economic calendar in the United States. Key data releases include the US inflation figures scheduled for Tuesday and Wednesday, followed by Retail Sales data later in the week.
These reports will likely shape market expectations regarding the Federal Reserve’s future actions, particularly concerning interest rates.
Market analysts are closely watching the upcoming release of July’s Producer Price Index (PPI), which is expected to show a slight decrease from 0.2% to 0.1% month-on-month.
Additionally, the CPI is forecasted to drop from 3% year-on-year to 2.9%, with the core CPI expected to continue its downward trend from 3.3% to 3.2% year-on-year.
Meanwhile, economists anticipate a modest rise in US Retail Sales, projecting a jump from 0% to 0.3% month-on-month.
Despite the current bullish momentum, there are some nuances to consider. Reports indicate that China’s central bank has refrained from purchasing gold for the third consecutive month, a development that some traders see as a potential limit on further price gains.
Additionally, the CME FedWatch Tool, which gauges the likelihood of future interest rate changes, shows that the odds of a 50-basis-point rate cut by the Federal Reserve at its September meeting have dropped to 47.5%, down from 52.5% just a few days earlier.
From a technical perspective, gold’s uptrend appears strong, with prices approaching the critical $2,470 level. Should this level be breached, analysts predict that gold could soon test its all-time high (ATH) of $2,483.
The momentum, as indicated by the Relative Strength Index (RSI), suggests that buyers currently have the upper hand, with the RSI sitting above the neutral line and trending higher.
If gold continues to climb, the first significant resistance level would be the ATH. Should prices surpass this threshold, the next psychological barrier lies at $2,500, followed by potential gains towards $2,550 and even $2,600 in the event of continued positive momentum.
On the downside, if gold were to drop below $2,450, the next key support level would be $2,400, followed by the 50-day Simple Moving Average (SMA) at $2,373.
Further declines could see prices testing the 100-day SMA at $2,352, with a support trend line around $2,320 providing additional backing.
