Gold rises to just off all-time highs on elevated geopolitical risk

• Gold extends its rally from Fed Chair Powell’s speech on Friday as Middle East tensions ratcheted up over the weekend. 
• The precious metal was already rallying after the Fed chair’s speech signaled the beginning of a lower interest-rate regime. 
• Technically, XAU/USD resumes its overall uptrending bias and edges towards its next target at $2,550.  

Gold (XAU/USD) trades up into the $2,520s on Monday, just off its all-time highs of $2,531, as a combination of safe-haven demand sparked by rising geopolitical tensions in the Middle East, and increased confidence US interest rates will track lower in the medium-to-long term, make the non-interest paying asset more attractive to investors. 

US Durable Goods orders, released during the US session, showed a 9.9% surge in Durable Goods orders in July, which was a big turnaround from the 6.9% decline in the previous month, and well above consensus estimates of a 4.0% increase. It was the largest gain since May 2020 and suggested a resilience in the US economy that goes against the countervailing mood of pessimism. 

That said, Gold quickly recoverd after momentarily slipping following the release, to continue trading in the $2,520s, within its daily range. 

Gold edges higher as risk aversion helps safe-haven demand

Gold trades higher on Monday as geopolitical risk aversion increases investor demand for safe-havens, of which Gold is a notable example. 

Rising tensions in the Middle East are a factor, after the Israelis launched a mass pre-emptive strike on Hezbollah positions in Lebanon over the weekend. Hezbollah then retaliated with a hail of missiles and drone strikes in northern Israel. Fears Iran could enter the conflict after weeks of threats also persist.

Powell speech drives Gold higher after sea change in language

Gold rose over a percentage point on Friday after the Chairman of the Federal Reserve (Fed) Jerome Powell made a speech at the Jackson Hole central banking symposium, in which he gave the clearest signals yet that the Fed is going to cut interest rates. 

Powell raised concerns that the US labor market is slowing down due to the impact of continuously high interest rates, which have remained at a peak range of 5.25%-5.50% since July 2023. Whilst these had successfully reduced inflation, they were now having a negative impact on company hiring. 

“Upside risks to inflation have diminished, downside risks to employment have increased,” said Powell, adding that “Labor market cooling is unmistakable, no longer overheated."

US government bond yields, which reflect investors' outlook for inflation and interest rates, fell after his speech. The yellow metal tends to appreciate when yields drop as it reduces the opportunity cost of holding non-interest paying Gold.  

The US Dollar Index (DXY), which measures the strength of the Dollar against a trade-weighted basket, – and is negatively correlated to Gold – sank to a new year-to-date low of 100.53 on Monday morning as traders continued to digest Powell’s comments.  

Gold has benefited from elevated expectations that the Fed will make a “mega” 0.50% interest-rate cut in September – double the usual 0.25% reduction. From a probability in the mid-20% prior to his speech, the chances of such a bumper cut have risen back up to the mid-30% afterward, according to the CME FedWatch tool, which uses the price of 30-day fed fund futures in its calculations.   

Technical Analysis: Gold extends bounce from top of old range 

Gold (XAU/USD) extends the rebound from support at the top of its old range. Despite trading sideways recently, the pair remains in an uptrend and given “the trend is your friend” this continues to favor longs over shorts. 

XAU/USD Daily Chart

The breakout of the range on August 14 generated an upside target at roughly $2,550, calculated by taking the 0.618 Fibonacci ratio of the range’s height and extrapolating it higher. This target is the minimum expectation for a follow-through after a breakout based on principles of technical analysis. 

A break above the $2,531 all-time high from August 20 would provide added confirmation of a continuation higher towards the $2,550 target.  

Alternatively, a break back inside the range would negate the upside projected target. Such a move would be confirmed on a close below $2,470 (August 22 low). It would change the picture for Gold and bring the short-term uptrend into doubt. 

Gold is in a broad uptrend on medium and long-term time frames, however, which further supports an overall bullish outlook for the precious metal.