Gold extends rally as geopolitical tensions escalates

Gold shows strong bullish momentum, driven by a weakening U.S. dollar and expectations of further Federal Reserve rate cuts.
Escalating geopolitical tensions in the Middle East have increased the demand for gold.
The technical outlook for gold is bullish, supported by the inverted head and shoulders pattern and a price breakout above the channel.

Muhammad Umair, PhD Gold Predictors

Gold is maintaining strong bullish momentum, driven by a weakening U.S. dollar and the expectation of further rate cuts by the Federal Reserve. As the Fed moves towards easing its monetary policy, lower interest rates decrease the opportunity cost of holding non-yielding assets such as gold, making it more appealing to investors. Furthermore, escalating geopolitical tensions in the Middle East, especially between Hezbollah and Israel, are increasing the demand for safe-haven assets, contributing to the upward movement in gold prices. These dynamics have pushed gold to record highs, with prospects for continued growth as investors seek protection from global uncertainty and accommodative monetary policy.

Market participants will focus on key economic indicators, including the U.S. Purchasing Managers Index (PMI), which could affect the dollar's strength and influence gold prices. A stronger-than-expected PMI could support the USD, putting pressure on gold. The forced liquidation of short positions could push gold to new highs, particularly as rising bond yields create less favourable conditions for other asset classes. With the Federal Reserve's cautious approach to future rate cuts and ongoing geopolitical tensions, gold is positioned for continued upward movement.

Gold technical outlook and buying opportunities

The technical outlook for the gold market is strongly bullish, highlighted by the inverted head-and-shoulders pattern. The price consolidation between April and June 2024 was a seasonal correction that created price compression, leading to a breakout above the channel, indicating higher prices. The inverted head-and-shoulders pattern supports this upward move, suggesting further gains. As a result, investors may consider buying on dips.

Trading gold during geopolitical crises can be risky due to increased volatility. Therefore, traders should focus on buying during dips and entering trades at strong support levels, calculated through detailed technical analysis. The key examples are the trade entries shared by Gold Predictors with its members, which have shown significant upward momentum since entry, as shown in the chart below. These were swing trade entries targeting moves over 1 to 4 months, and day trades should follow a similar approach during times of heightened geopolitical tension.

Bottom line

In conclusion, gold continues to exhibit strong bullish momentum, supported by a weakening U.S. dollar, expectations of Federal Reserve rate cuts, and escalating geopolitical tensions in the Middle East. These factors have propelled gold to record highs, with further upside likely as investors seek safe-haven assets amid global uncertainty. The technical outlook also reinforces this bullish trend, with key patterns and price breakouts indicating higher prices ahead. While geopolitical volatility may pose risks, traders can capitalize on opportunities by buying during dips and focusing on strong support levels, positioning themselves for potential gains in the ongoing rally.

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Author

Muhammad Umair, PhD

Gold Predictors

Muhammad Umair is a financial markets analyst and investor who focuses on the forex and precious metals markets.

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