Gold (XAU/USD) is trading in negative territory at approximately $2,620 during the early Asian session on Monday, yet it remains close to its all-time high. An unexpected interest rate cut by the Federal Reserve (Fed) and escalating geopolitical tensions in the Middle East are contributing to gold’s appeal as a safe-haven asset.
Fed’s Rate Cut: Last week, the Federal Open Market Committee (FOMC) surprised markets by slashing interest rates by 50 basis points after a two-day meeting, signaling the possibility of further cuts by the end of 2024. Such a move is likely to enhance the attractiveness of gold, which does not yield interest.
Geopolitical Tensions: In addition, fears of escalating conflict in the Middle East are providing upward support for gold prices. Hezbollah has vowed retaliation following a recent attack, leading to increased hostilities with Israel. Heavy exchanges of fire were reported on Sunday, with Hezbollah launching missiles into northern Israel amid one of the most intense periods of bombardment in nearly a year, according to CNN.
Economic Outlook: However, the potential for gold’s upward momentum may be limited by the Fed’s optimistic outlook for US economic growth. The central bank projects the economy will expand at approximately 2.0% annually through the end of 2027, suggesting a soft landing that could weigh on safe-haven gold demand.
What’s Next: Looking ahead, gold traders will be closely monitoring developments regarding geopolitical risks in the Middle East. Additionally, the flash reading of the US Purchasing Managers Index (PMI) is set to be released later today. A stronger-than-expected PMI result could bolster the US dollar, applying downward pressure on gold prices, which are denominated in USD.
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