Gold price gains on Middle East tensions, expectations of dovish Fed

• Gold price rises to near $2,420 as upside risks to Middle East tensions have improved its safe-haven appeal.
• The major trigger for the Gold price will be the Fed’s guidance on interest rates.
• Investors see the Fed leaving interest rates unchanged with a dovish guidance.

Gold price (XAU/USD) exhibits a strong performance in Wednesday’s European session, with investors focusing on the Federal Reserve’s (Fed) monetary policy outcome later the day. The precious metal climbs to near $2,420 as its safe-haven appeal improves amid fears that Middle East tensions would widen further. Historically, investors find investment in precious metals as safe bet amid geopolitical tensions.

Fears of an all-out war between Israel and Iran deepened after reports showed that Hamas leader Ismail Haniyeh was killed in an Israeli air strike on Tehran. This has prompted fears of a retaliation move by Iran, which would diminish hopes of a ceasefire significantly.

Meanwhile, the US Dollar edges lower amid uncertainty over Fed policy outcome. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers above 104.00. 10-year US Treasury yields remain on the backfoot near 4.14%.

Daily digest market movers: Gold price gains further while US Dollar turns subdued

• Gold price gains further above $2,400 ahead of the Fed policy meeting, in which the central bank is expected to leave interest rates unchanged in the range of 5.25%-5.50% for the eighth time in a row. As the CME FedWatch tool shows that the decision to maintain a status quo is widely anticipated, investors will keenly focus on the Fed’s guidance on interest rates.
• In the monetary policy statement and the press conference, Fed Chair Jerome Powell is expected to reiterate that inflation has returned to a path that leads to the bank’s target of 2%. Jerome Powell may also highlight rising risks to the labor market. It would be a tough call for Powell to provide a timeline for rate cuts as the battle against inflation is far from over and the United States (US) economy is growing at a robust pace.
• The US labor market strength appears to be moderating due to the long-term maintenance of a restrictive policy framework. The Unemployment Rate in June, at 4.1%, was recorded as the highest in more than two years. Also, JOLTS Job Openings data grew almost steadily in June. Job vacancies in June came in at 8.18 million against expectations of 8.03 million but were lower than the prior release of 8.23 million, suggesting that job demand has moderated.
• According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the central bank will reduce interest rates by 25 basis points (bps) from their current levels in the September meeting. The data also shows that there will be two rate cuts instead of one, as policymakers projected in the latest Fed dot plot.
• Before the Fed policy announcement, investors will focus on the ADP Employment Change data for July, which will be published at 12:15 GMT. The report is estimated to show that private payrolls rose steadily by 150K.
• The entire week is expected to remain volatile for the FX domain as two more crucial US data are lined up for release this week. These are the ISM Manufacturing Purchasing Managers’ Index (PMI) and the Nonfarm Payrolls (NFP) for July, which will be published on Thursday and Friday, respectively.

Technical Analysis: Gold price climbs above $2,400

Gold price trades in a channel formation on a daily timeframe, which is slightly rising but has been broadly exhibiting a sideways performance for more than three months. The 50-day Exponential Moving Average (EMA) near $2,366 continues to provide support to the Gold price bulls. 

The 14-day Exponential Moving Average (EMA) oscillates in the 40.00-60.00 range, suggesting indecisiveness among market participants. 

Fresh upside would appear if the Gold price breaks above its all-time high of $2,483.75, which will send it into unchartered territory.

On the downside, the Gold price will find support near the upward-sloping trendline around $2,225, plotted from October 6 low near $1,810.50.