Gold prices have recently dipped to 2507 USD per troy ounce but are poised for a potential rebound due to increased demand for safe-haven assets amid escalating conflict in the Middle East. Additionally, anticipations of monetary policy easing by the US Federal Reserve in September further bolster gold's outlook.
Monetary policy and market dynamics
Last week, Fed Chair Jerome Powell indicated a likely rate cut as US inflation approaches the target of 2%, with a particular focus on the softening employment market impacted by prolonged high interest rates. Mary Daly of the FRB San Francisco echoed Powell's sentiment, advocating for policy adjustments which support a favourable environment for gold as lower interest rates typically decrease the opportunity cost of holding non-yielding assets like gold.
Geopolitical influences
The situation in the Middle East, particularly between Israel and the Gaza Strip, remains volatile. Despite initial hopes for a peace agreement facilitated by US diplomatic efforts, the conflict has reignited, driving up demand for gold. Such geopolitical uncertainties typically enhance gold's appeal as a protective investment during times of crisis.
Technical analysis of XAU/USD
In the latest XAUUSD analysis, gold exhibited a downward impulse to 2470.77 USD, followed by a correction to 2526.00 USD. It is forming another downward wave targeting 2480.20 USD, expecting to break this level and potentially move towards 2435.55 USD. The MACD indicator, with its signal line positioned above zero but pointing downward, supports this bearish scenario.
After completing a corrective structure to 2526.00 USD, gold is expected to form a downward wave to 2500.00 USD. Upon reaching this target, a brief rise to 2513.33 USD might occur before continuing downward to 2480.20 USD. This pattern suggests only half of the anticipated downward trend. The Stochastic oscillator, near 50 and expected to rise to 80, indicates potential short-term gains before resuming the downward movement.
Summary
The interplay of easing monetary policies by the Fed and increasing geopolitical risks in the Middle East creates a complex but potentially favourable backdrop for gold prices. Investors might see gold as an attractive investment, a safe-haven asset and a hedge against potential currency devaluation and inflation uncertainties. These factors and technical indicators suggest a volatile but upward potential trajectory for gold prices in the near term.
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