Gold prices (XAU/USD) have shown a steady resurgence, with the precious metal managing to hold above the $1,850 level. Investors are closely watching the Federal Reserve’s stance and geopolitical tensions as they await crucial economic indicators. Gold’s recovery from a seven-month low around $1,810 has garnered interest, despite a cautious approach by bulls.
The recent United States Nonfarm Payrolls (NFP) report revealed moderate wage growth in September, alleviating inflation concerns. Additionally, dovish remarks from several Fed officials have signaled the possibility of a shift in the central bank’s policy stance, offering support to gold. Geopolitical tensions related to the Israel-Gaza conflict have also bolstered the safe-haven appeal of gold.
However, the markets continue to factor in the potential for at least one rate hike by the end of the year. This, coupled with a generally positive risk sentiment and a slight uptick in the US Dollar (USD), may act as limiting factors for further gold price gains. Wednesday’s release of the US Producer Price Index (PPI) and the Federal Open Market Committee (FOMC) meeting minutes will provide essential insights ahead of the highly anticipated US Consumer Price Index (CPI) data on Thursday.
Federal Reserve officials’ statements have played a significant role in influencing market sentiment. Atlanta Fed President Raphael Bostic recently noted that the central bank may not need to raise rates further to achieve its 2% inflation target, a comment that aligns with the dovish trend. Minneapolis Fed President Neel Kashkari added that the increase in long-term Treasury bond yields could assist in the battle against inflation, further supporting the outlook for a more gradual approach to rate hikes.
The reevaluation of the Fed’s rate-hike trajectory has led to a continued decline in US bond yields and weighed on the US Dollar, benefitting the XAU/USD pair. However, not all Fed officials share the same view, as Fed’s Daly emphasized that the central bank still needs to address inflation concerns, leaving the possibility of further policy tightening later in the year.
The expansion of the Israel-Gaza conflict into the broader Middle East has raised concerns about higher Crude Oil prices and its potential impact on inflation. This could complicate the Federal Reserve’s efforts to achieve a soft landing in the economy, making a hawkish stance more challenging to maintain.
Investors are eagerly awaiting the US PPI and the FOMC minutes to gain insights into the Fed’s future rate-hike plans before Thursday’s consumer inflation figures. From a technical perspective, gold is flirting with a near two-week high, and a sustained upward momentum could push it towards key resistance levels, including the 50-day Simple Moving Average (SMA) at $1,900 and the 200-day SMA at approximately $1,928-1,930. However, failure to defend support levels at $1,850 and $1,835-1,833 could lead to further selling pressure, potentially dragging the price toward the multi-month low of around $1,810, which would confirm a bearish trend on the daily chart.