Gold prices (XAU/USD) surged to record highs in the $2,440s on Monday, driven by its safe-haven appeal as geopolitical risks intensified in the Middle East. Additionally, growing expectations that the Federal Reserve (Fed) may cut interest rates sooner than anticipated following weak US economic data further boosted the precious metal.
Key Drivers Behind Gold’s Rally
Geopolitical Uncertainty:
- Middle East Tensions: The death of Iranian President Ebrahim Raisi and other high-profile Iranian figures in a helicopter crash has heightened uncertainty in a region already destabilized by the Israel-Hamas conflict. This incident, reported by Reuters, has added to the geopolitical risk, pushing investors towards safe-haven assets like gold.
- Russia-Ukraine Conflict: Russia’s military actions in the Kharkiv region and the recent display of solidarity between Russian President Vladimir Putin and Chinese President Xi Jinping during Putin’s visit to Beijing have contributed to global geopolitical instability. This fracturing of international relations supports gold as a hedge against geopolitical risks.
- BRICS and Emerging Markets: The IMF notes an increased demand for gold from BRICS countries and emerging market central banks as a safeguard against potential Western sanctions. This trend is expected to persist in light of current global events.
Federal Reserve and Interest Rate Expectations:
- US Economic Data: Tepid inflation and retail sales data for April have led to increased speculation that the Fed might lower interest rates sooner than previously expected. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors.
- Market Sentiment: The CME FedWatch tool indicates a 65% chance that the Fed will lower the fed fund rates by September. This anticipation of rate cuts is bolstering gold prices.
- Fed Speeches: Market participants are keenly awaiting speeches from key Fed officials, including Atlanta Fed President Raphael Bostic, Fed Vice Chair for Supervision Michael Barr, Fed Governor Christopher Waller, and Fed Vice Chair Phillip Jefferson, which could provide further clarity on the Fed’s monetary policy stance.
Technical Analysis: Gold’s Bullish Momentum
Short-Term Outlook:
- Bullish Trend: Gold prices have rallied above $2,440, breaking out of a rising channel formed since May 2. The short-term trend remains bullish, with more upside expected as the adage “the trend is your friend” suggests.
- RSI Indicator: The Relative Strength Index (RSI) is currently overbought, indicating that long-holders should refrain from adding positions. A correction is likely when the RSI falls below 70, with potential support at the upper channel line and previous highs around $2,430.
Key Levels to Watch:
- Immediate Resistance: The new all-time high of $2,450 serves as a crucial resistance level. A break above this could propel gold prices towards the psychologically significant $2,500 level.
- Support Levels: Any corrections are expected to find support around $2,430, with further support at previous highs.
Medium and Long-Term Outlook:
- Bullish Backdrop: The medium and long-term charts (daily and weekly) also indicate a bullish trend, providing a supportive backdrop for continued gains in gold prices.
