Gold prices rise amid geopolitical tensions and Fed uncertainty

Gold prices rallied on Monday, recovering from a two-week low, as investors grappled with escalating geopolitical tensions in the Middle East and diminishing expectations of US interest rate cuts.

Recent hawkish comments from Federal Reserve officials and better-than-expected US economic data have dampened expectations of interest rate cuts, reducing gold’s appeal as an inflation hedge. Despite this, Spot gold climbed nearly 1.0% to $2,356.37 per ounce, while gold futures in New York mirrored this gain with a 0.9% increase.

This upward movement was primarily driven by heightened demand for gold as a safe-haven asset due to the escalating tensions in the Middle East, marked by reports of casualties from Israeli air attacks.

Investors are now keenly awaiting the release of the April personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, later this week, which could provide further clues on the future direction of monetary policy.

Gold rallies amid economic shifts

Gold’s allure as a safe-haven asset continues to shine brightly amid growing geopolitical tensions and economic uncertainties, according to analysts. Recent events in the Middle East, such as the reported casualties from Israeli air attacks in Gaza, have underscored gold’s appeal in times of crisis. This heightened demand has contributed to gold’s impressive performance this year, with prices surging over 16% year-to-date and reaching a record high of over $2,400 per ounce in May.

Further bolstering gold’s prospects is the positive economic data emerging from the US. The unexpected rise in Durable Goods Orders and the higher-than-expected University of Michigan Consumer Sentiment Index indicate a resilient economy, which could potentially fuel inflationary pressures. This, coupled with the slight uptick in one-year inflation expectations, could reinforce gold’s traditional role as a hedge against inflation.

Investor confidence in gold’s future remains strong, as evidenced by bullish predictions from leading financial institutions. UBS analysts recently raised their gold price forecast to $2,600 for the end of 2024, while Citi analysts boldly predict that gold could hit $3,000 per ounce in the next six to 18 months.

Technical analysis: Will gold prices continue to rise?

At the time of writing, the price is holding above the $2,300 mark, with bullish sentiment present as the yellow metal remains above the 100-day EMA on the daily chart. However, analysts note that the 14-day Relative Strength Index (RSI) stands around the 50 mid-line – indicating that a consolidation or a pull back cannot be ruled out.

If a slide in prices were to materialise, XAUUSD could find support near the lower boundary of the Bollinger Band at $2,324. Further selling could see prices test a previous support price at $2,289. On the upside, a decisive move up could face resistance close to the upper boundary of the Bollinger Band at the $2,424 price level. A breach above that level could set the stage for an advance towards the $2,450 psychological level, according to analysts.

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