Gold prices jump on geopolitical tensions ahead of US CPI

Gold surges 1% as US Treasury yields retreat ahead of key CPI data, with the 10-year yield down to 3.902%.
Ongoing tensions in the Middle East, with no ceasefire in sight, drive demand for Gold’s safe-haven status.
Traders await critical US inflation and Retail Sales reports with Fed commentary signaling cautious optimism on disinflation.

Gold price rallied over 1% on Monday during the mid-North American session as US Treasury bond yields retreated ahead of a busy economic calendar in the United States. Traders are bracing for the latest Consumer Price Index (CPI) report for July, which is expected to show an improvement in the disinflation process. The XAU/USD trades at $2,467 after bouncing off a daily low of $2,423.

Sentiment shifted sour amid ongoing developments in the Middle East. Israel, Lebanon and Iran's lack of efforts to reach a ceasefire agreement kept market participants uneasy. This triggered a flight to Gold’s safe-haven status due to a possible escalation of the conflict.

US Treasury bond yields edged lower with the 10-year benchmark note rate down four basis points (bps) to 3.902%, ahead of the release of inflation data.

In the meantime, Federal Reserve Governor Michele Bowman was neutral, contrary to her usual hawkish posture and said that some progress on inflation is welcome, according to data from the last two months.

During the week, the economic docket will feature the release of US inflation figures on Tuesday and Wednesday, followed by Retail Sales data on Thursday and Friday’s University of Michigan (UoM) Consumer Sentiment.

Daily digest market movers: Gold price soars ahead of US data release

July’s Producer Price Index is expected to drop from 0.2% to 0.1% MoM.
The Consumer Price Index (CPI) is estimated to drop from 3% YoY to 2.9%; core CPI is expected to continue its downtrend from 3.3% to 3.2% YoY.
Economists expect a jump in US Retail Sales from 0% to 0.3% MoM.
The golden metal price gathered traction despite reports that China’s central bank restrained itself from purchasing Gold for the third consecutive month.
The CME FedWatch Tool shows the odds of a 50-basis-point interest rate cut by the Fed at the September meeting at 47.5%, down from 52.5% last Friday.

Technical analysis: Gold price advances past $2,450

Gold’s uptrend extended on Monday, with prices approaching the $2,470 figure ahead of the all-time high (ATH) of $2,483, which could be tested if inflation comes lower than foreseen. Momentum favors buyers, as reflected by the Relative Strength Index (RSI), which is above the neutral line aiming higher.

The buyer's first resistance would be the ATH. Once cleared, the next challenge would be to clear the psychological figure of $2,500. Further gains are seen above that level, with $2,550 being next, followed by $2,600.

Conversely, if XAU/USD drops below $2,450, the next support would be $2,400, followed by the 50-day Simple Moving Average (SMA) at $2,373. Once surpassed, the decline could intensify, leading to the 100-day SMA at $2,352, followed by a support trendline around $2,320.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.