Gold Price Forecast: ‘Buy the dips’ amid Middle East tensions, dovish Fed
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UNLOCK OFFER- Gold price is on the front foot, consolidating recent gains, as August kicks off.
- US Dollar nurses heavy losses with US Treasury bond yields as the Fed leans dovish.
- A test of all-time highs at $2,484 seems inevitable for Gold price amid bullish daily technical setup.
Gold price is consolidating July’s stellar gains, starting out August, with buyers having the upper hand following the dovish outcome of the Federal Reserve (Fed) policy announcements. Escalating Middle East geopolitical tensions between Iran and Israel also underpin the safe-haven appeal of Gold price.
Gold price cheers dovish Fed. Middle East escalation
Gold price is on a three-day winning streak early Thursday, courtesy of the recent sharp declines in the US Dollar (USD) and the US Treasury bond yields, following the Fed interest rate decision and Chairman Jerome Powell’s comments at the press conference.
At its July policy decision, the Fed kept the fed funds rate at 5.25% to 5.5%, acknowledging that “some further progress” toward its 2% inflation goal. Considering that, the US central bank tweaked its policy statement to say that it is "attentive to the risks to both sides of its dual mandate", rather than previously only noting its attention to inflation risks.
During the press conference, Powell said that “the broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate,” flagging a September rate cut. He added, “when we were far away from our inflation mandate, we had to focus on that,” Powell said. “now, we’re back to a closer-to-even focus.”
On the employment front, the Fed Chairman said indicators show the job market has gradually normalized from “overheated” conditions.
Although Powell tried to be rather cautious with his message, his take on inflation and employment only made markets believe that a rate cut in September remains on the table. Wall Street indices shot through the roof, exerting additional downside pressure on the Greenback while bolstering the Gold price rally. The USD also bore the brunt of the policy divergence between the Fed and the Bank of Japan (BoJ) after the latter surprised markets with a 15 basis points rate hike early Wednesday, triggering a massive sell-off in the USD/JPY pair.
Besides the US Dollar weakness, Gold price also benefitted from renewed geopolitical concerns surrounding Iran and Israel after Hamas reported the assassination of its political leader Ismail Haniyeh in an overnight strike in the Iranian capital Tehran. Hamas accused Israel of targeting Haniyeh.
The tensions between Iran and Israel intensified early Thursday after New York Times reported that Iranian Supreme Leader Ali Khamenei has ordered a direct strike on Israel for the killing of Hamas chief Haniyeh.
These fundamental factors will continue to lend support to Gold price. However, Gold price could see a brief correction from two-week highs of $2,458 before challenging the all-time peak at $2,484. Traders are likely to take profits off the table in the lead-up to the critical US Nonfarm Payrolls data due on Friday.
The focus also remains on the US ISM Manufacturing PMI and the weekly Jobless Claims for fresh trading incentives in Gold price.
Gold price technical analysis: Daily chart
Despite the latest run higher, Gold buyers seek acceptance above the previous record high of $2,450 on a daily closing basis.
If that happens, the next upside targets are seen at the July 18 high of $2,475 and the lifetime highs of $2,484.
Adding credence to the bullish potential, the 14-day Relative Strength Index (RSI) holds well above the 50 level, currently near 60.50.
However, any correction in Gold price could find initial demand at the previous resistance-turned-support at $2,425, below which the $2,410 round number could be tested.
The last line of defense for Gold buyers is seen at the 21-day Simple Moving Average (SMA) at $2,405.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- Gold price is on the front foot, consolidating recent gains, as August kicks off.
- US Dollar nurses heavy losses with US Treasury bond yields as the Fed leans dovish.
- A test of all-time highs at $2,484 seems inevitable for Gold price amid bullish daily technical setup.
Gold price is consolidating July’s stellar gains, starting out August, with buyers having the upper hand following the dovish outcome of the Federal Reserve (Fed) policy announcements. Escalating Middle East geopolitical tensions between Iran and Israel also underpin the safe-haven appeal of Gold price.
Gold price cheers dovish Fed. Middle East escalation
Gold price is on a three-day winning streak early Thursday, courtesy of the recent sharp declines in the US Dollar (USD) and the US Treasury bond yields, following the Fed interest rate decision and Chairman Jerome Powell’s comments at the press conference.
At its July policy decision, the Fed kept the fed funds rate at 5.25% to 5.5%, acknowledging that “some further progress” toward its 2% inflation goal. Considering that, the US central bank tweaked its policy statement to say that it is "attentive to the risks to both sides of its dual mandate", rather than previously only noting its attention to inflation risks.
During the press conference, Powell said that “the broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate,” flagging a September rate cut. He added, “when we were far away from our inflation mandate, we had to focus on that,” Powell said. “now, we’re back to a closer-to-even focus.”
On the employment front, the Fed Chairman said indicators show the job market has gradually normalized from “overheated” conditions.
Although Powell tried to be rather cautious with his message, his take on inflation and employment only made markets believe that a rate cut in September remains on the table. Wall Street indices shot through the roof, exerting additional downside pressure on the Greenback while bolstering the Gold price rally. The USD also bore the brunt of the policy divergence between the Fed and the Bank of Japan (BoJ) after the latter surprised markets with a 15 basis points rate hike early Wednesday, triggering a massive sell-off in the USD/JPY pair.
Besides the US Dollar weakness, Gold price also benefitted from renewed geopolitical concerns surrounding Iran and Israel after Hamas reported the assassination of its political leader Ismail Haniyeh in an overnight strike in the Iranian capital Tehran. Hamas accused Israel of targeting Haniyeh.
The tensions between Iran and Israel intensified early Thursday after New York Times reported that Iranian Supreme Leader Ali Khamenei has ordered a direct strike on Israel for the killing of Hamas chief Haniyeh.
These fundamental factors will continue to lend support to Gold price. However, Gold price could see a brief correction from two-week highs of $2,458 before challenging the all-time peak at $2,484. Traders are likely to take profits off the table in the lead-up to the critical US Nonfarm Payrolls data due on Friday.
The focus also remains on the US ISM Manufacturing PMI and the weekly Jobless Claims for fresh trading incentives in Gold price.
Gold price technical analysis: Daily chart
Despite the latest run higher, Gold buyers seek acceptance above the previous record high of $2,450 on a daily closing basis.
If that happens, the next upside targets are seen at the July 18 high of $2,475 and the lifetime highs of $2,484.
Adding credence to the bullish potential, the 14-day Relative Strength Index (RSI) holds well above the 50 level, currently near 60.50.
However, any correction in Gold price could find initial demand at the previous resistance-turned-support at $2,425, below which the $2,410 round number could be tested.
The last line of defense for Gold buyers is seen at the 21-day Simple Moving Average (SMA) at $2,405.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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