On Monday, the price of gold (XAU) rallied by 1.67%, defying expectations amidst stronger-than-anticipated retail sales data that reduced the likelihood of an interest rate cut by the Federal Reserve (Fed) in July, thereby strengthening the US dollar.
The surge in gold prices was primarily fueled by safe-haven demand, driven by escalating geopolitical tensions in the Middle East. Israel’s Chief of the General Staff’s statement regarding the country’s response to Iran’s attack heightened fears of a broader conflict in the region. However, market sentiment tends to absorb geopolitical uncertainties swiftly, raising the risk of a significant downward correction in gold prices.
“In the near term, gold prices could fall towards $2,200 as the geopolitical premiums get washed out,” noted Daniel Pavilonis, senior market strategist at RJO Futures.
Despite potential short-term fluctuations, there is a discernible shift towards gold among central banks, as they seek to diversify their reserves and reduce exposure to the US dollar.
“It is unlikely that there will be a wholesale reversal to net selling in the near term despite the record gold price, as central bank buying tends to be strategic and insensitive to the price,” analysts at Heraeus commented in a note.
However, the macroeconomic environment exerts downward pressure on gold, with upbeat US statistics diminishing the likelihood of a summer interest rate cut by the Fed.
XAU/USD saw minimal movement during Asian and early European trading sessions. Market participants are advised to focus on speeches from Fed officials throughout the day, with Fed Chair Jerome Powell’s address at 5:15 p.m. UTC being particularly noteworthy. These speeches may provide insights into the Fed’s sentiment and offer clues regarding future changes in interest rates. Additionally, any developments in the Middle East are likely to prompt volatility in XAU/USD.
“Spot gold may retrace into a range of $2,345–$2,354 per ounce, as a correction from the 12 April high of $2,431.29 looks incomplete,”
